Discover more from Economics Matters by Laurence Kotlikoff
Limited Purpose Banking
A Financial System that Can't Fail
Our financial system failed in 2008. Fifteen years later, it has failed again. Over half of FDIC insured banks are now insolvent when properly valued on a mark-to-mark basis. All the King’s horses (the Treasury, the Federal Reserve, and the FDIC) and all the King’s men (the large, systemically important money center banks) can’t put this Humpty Dumpty back together again.
Every financial crisis has its own triggers. But the underlying ingredients, leverage and opacity, are always the same. In this case, the leverage is the $8 trillion in uninsured deposits that U.S. banks have borrowed combined with massive balance sheet opacity sanctioned by government “regulators,” that’s left some $2 trillion of marked-to-market losses off the books. Leverage and opacity are doing their number across the pond. Switzerland is the land of venerable, trustworthy banks. But its second largest bank — Credit Swiss, just went poof thanks to its global depositors realizing not a single Swiss franc of their deposits was insured and that the 156 year-old bank had “some” accounting irregularities.
No one, be they rich or poor, is in love with their bank. They are parking money there to facilitate transactions, including future investing, or simply to keep it safe. They didn’t choose to park their money for the opportunity to have it disappear because of a run based on problems with the bank’s assets of which they were totally unaware because of a tweet, potentially fired off by a party with a short position, produced a panicked run — no different from someone screaming FIRE! in a crowded, dark theatre.
The Great Financial Crisis primarily entailed banks running on banks. The current crisis is more typical - people and businesses, large and small, running on banks. In large part, this run entails those with the $8 trillion in uninsured deposits moving their money to 100 percent equity-financed mutual funds — mutual funds that primarily hold U.S. Treasuries. Since such mutual funds have no debt (They hand back shares, not “for-sure” I.O.U.s to investors.), they can’t fail.
This is an endogenous movement to Limited Purpose Banking (LPB), the perfectly safe, modern banking system I proposed in my 2010 book, Jimmy Stewart Is Dead. The reform eliminates the evil twins — leverage and opacity — that banks, broadly defined, use to play Heads I win, tails the taxpayer loses.
Limited Purpose Banking limits banks and all other financial corporations to their legitimate purpose — financial intermediation. It does so by eliminating all use of leverage by those running our financial exchange system, which connects lenders to borrowers and savers to investors. And it turns on the lights so that everyone can learn, in real time, everything there is to know about the assets in which they’ve invested. This information collection and dissemination would be done by a new federal agency, not Wall Street firms who have repeatedly dissembled about the value and risk of their assets.
Limited Purpose Banking received considerable attention during and after the Great Recession. Mervin King, then Governor of the Bank of England, arranged for me to present the plan at a conference on LPB at the BoE. Some 70 staff from the Bank, H.M. Treasury, and the former Financial Services Authority as well as top private-sector banking and financial experts, including prominent academics, attended. This as well as many other meetings with central bankers and media interviews made clear, LPB is a serious alternative to our built-to-fail current banking system that serious people are taking seriously.
Unfortunately, interest in LPB died down as the titans of Wall Street and The City “arranged” for their paid minions — the politicians — to let them continue to do what they do best — gamble with other people’s money and the health of our economy.
Now that the banking system is failing yet again, LPB is being reconsidered. The Financial Times’ chief financial columnist, Martin Wolf, just mentioned LPB in the FT. And the New York Time’s brilliant economics columnist, Peter Coy, discussed LPB in today’s column.
What, Specifically, Is Limited Purpose Banking?
Below, I reproduce, verbatim, a description of LPB from a book entitled On the Economic Consequences of the Vickers Commission. You can download it for free here.
The Vickers Commission was established to recommend reforms to British banking after the Great Recession. As you can read, it did nothing of the sort. Neither, for that matter, did the heralded Dodd-Frank reform here in the U.S. We’re seeing in real time just how poorly Dodd-Frank works when push comes to shove.
LPB is a simple reform that can be easily implemented. But those who love a good financial crisis will be disappointed. The one thing it doesn’t feature is bank runs, where the word “bank,” as used below references any and every type of financial corporation.
The reason is that under LPB all financial corporations, be they banks, insurance companies, credit unions, investment banks, private equity funds, etc., can do only one thing — issue 100 percent equity-financed mutual funds. This renders the entire financial system fail proof.
The reform was effectively tested in the Great Recession. At the time, there were some 8,000 equity-financed mutual funds. Not a single one failed. The only mutual funds that failed were money market funds that were leveraged via their pledge to back investors to the buck — a promise they broke. Had the Treasury not immediately insured all money market funds to the buck, they would all likely have collapsed in a massive run.
In the Great Recession, we had a financial tsunami. Roughly 60 percent of the houses were built of straw. The other 40 percent were built of brick. Those built of straw collapsed. Those built of brick survived. Senator Dodd and Congressman Barney Frank combined forces to enact Dodd-Frank — a new regulatory framework to end financial crises once and for all. What it really constituted was a restoration of the financial system pretty much as it was. No surprise. Wall Street pays a pretty penny to members of the House Financial Service Committee, the Senate Finance Committee, and the Senate Banking Commission to ensure it can continue to con the American taxpayer.
Banking has always been built to fail. Indeed, it fails every 15 years on average. It failed spectacularly in the Great Recession. Dodd and Frank then ran to the rescue. They and their colleagues, knowing who really butters their bread, rebuilt the system with only minor tweaks. Thus the banking system failed, was “rebuilt” to fail again, and, right on time — 15 years later — is failing again. As for Dodd and Frank, Dodd retired to work for the motion picture industry. Frank retired to work for Signature Bank — the selfsame Signature Bank that just went caput, constituting the 3rd largest bank failure in our country’s history.
Limited Purpose Banking’s Principles
1. The financial system’s role is intermediation, not gambling.
2. The financial system should be transparent and provide full disclosure.
3. The financial system should never collapse or put the economy at risk.
4. The financial system should not require government guarantees and threaten taxpayers.
5. The financial system should be sufficiently well structured as to require limited regulation.
6. The financial system’s intermediation practices should enhance economic performance.
Limited Purpose Banking’s Design
1. All financial corporations can market just one thing – mutual funds.
2. Mutual funds can’t borrow, explicitly or implicitly, and, thus, can never fail.
3. Cash mutual funds, holding only cash, are used for the payment system.
4. Cash mutual funds are the only mutual funds backed to the buck.
5. Tontine-‐type mutual funds are used to allocate idiosyncratic risk.
6. Parimutuel mutual funds are used to allocate aggregate risk.
7. The Financial Services Authority (FSA) hires private companies working only for it to verify, appraise, rate, custody and disclose, in real time, all securities held by mutual funds.
8. Mutual funds buy and sell FSA-‐processed and disclosed securities at auction. This ensures that issuers of securities, be they households or firms, receive the highest price for their paper.
Limited Purpose Banking’s Line in the Sand
Limited Purpose Banking (LPB) draws its line in the sand not between commercial and investment banks or between banks and non-‐banks, but between financial intermediaries with and without limited liability. All banks, insurance carriers, hedge funds, and other financial intermediaries with limited liability (i.e., all financial corporations) are LPB banks, and all LPB banks would operate strictly as unleveraged mutual fund holding companies; i.e. they would not be permitted to borrow, including going short, to invest in risky assets. Their only permitted function would be to market 100 per cent equity-‐financed mutual funds.
To ensure LPB banks operate on a completely risk-‐free basis, their investment banking activities would be run strictly as consulting services and leave the banks with no skin in the game. And all brokerage activities would be done via matching of buyers and sellers of securities, with no exposure of any kind at any time.
Note that the mutual funds marketed by mutual fund holding LPB companies, are, themselves, small banks with 100 per cent capital requirements in all circumstances – what economists call states of nature. Hence, under LPB neither the mutual funds themselves, nor their holding companies, the LPB banks, could ever go bankrupt. Some reformers advocate breaking up large banks. LPB effectively does this. It morphs large banks into large mutual fund holding companies that operate large numbers of completely safe (in the sense that they themselves can’t fail) small banks called mutual funds. These mutual funds would be both open and closed-‐end, with in-‐kind redemption rules governing open-‐end funds to preclude any question of payout in the case of significant simultaneous redemptions.
LPB — The Role of Financial Regulation
Because every financial corporation would be a mutual fund holding company marketing non-‐leveraged mutual funds that could never go broke, financial collapse would be a thing of the past. So would non-‐disclosure, insider-‐rating, and the production of fraudulent securities. A single regulatory body — the Financial Services Authority (FSA) — would hire companies, which work exclusively for the FSA, to verify and disclose, in real time, all details of all securities being bought, sold, or held by the mutual funds.
Take mortgages. The FSA would verify the employment status, current and past earnings, credit history, and credit rating of the mortgage applicant. The companies working for the FSA would also appraise the value of the house the applicant seeks to purchase. Most importantly, it would disclose all details about the security on the web at the time it is issued and on an on-‐going basis until the mortgage is paid off.
Issuers of the security would be free to post their own assessments of the paper they are issuing, including private ratings that they have purchased. But the public would no longer need to trust people and institutions that have proven they aren’t trustworthy. This would put an end to the liar loans, NINJA loans, and No-Doc loans that were issued and quickly resold by “trustworthy” lenders during the run up to the Great Recession.
The LPB Auction Market
Once a new security is initiated by an LPB bank, processed by the FSA, and fully disclosed on the web, it would be put up for auction to the mutual funds being run by the LPB banks. This would ensure that issuers of bonds and stock receive the highest prices (pay the lowest interest rates) for their securities.
The FSA’s role may sound like lots of state intervention in the financial marketplace. It’s actually the opposite. The remit of the FSA would be very narrow. And most of its work would be done by the private sector – by private, non-‐conflicted, third-‐party appraisers and risk raters hired by the government.
The FSA will not ban any securities. It will disclose them. By analogy, the FSA will ensure that a bottle with cyanide is labelled cyanide, not Tylenol, so that people who shop in financial stores (mutual funds) will know what they are buying.
We know from long experience that markets don’t work without well-‐enforced rules of law. The FSA sets financial rules of law, namely, that you can’t sell what you don’t have. But it doesn’t say what financial products can or can’t be sold.
The market will no longer be forced to rely on ‘trustworthy’ bankers to honestly initiate securities, whether they be mortgages, consumer loans, small-‐business loans, large corporate debt issues, or equity offered by small or large businesses.
Wouldn’t LPB restrict credit?
No. Under LPB, people who seek to lend money to home buyers would simply purchase shares in a mutual fund investing in mortgages, with the money going directly to the mutual fund (not to the bank sponsoring the fund) and from there to the home buyer in return for his or her paper (mortgage). Those wanting to lend to small (large) companies would buy mutual funds investing in small firm (large firm) commercial paper. Those wishing to finance credit card balances would buy mutual funds investing in those assets.
Credit is ultimately supplied by people, not some magical financial machine. And every dollar people want to lend would be provided to borrowers via mutual funds or in direct person-‐to-‐person loans or via non-‐LPB banks that are not protected by limited liability.
Limited Purpose Banking is extremely safe compared to our extremely risky and, indeed, radical status quo. Indeed, it’s hard to think of LPB as being anything but highly conservative in terms of maintaining the safety of the financial system, requiring disclosure to preclude fraud in financial markets, and keeping bankers from imposing unaffordable costs on taxpayers.
Furthermore, LPB is, in large part, already in place, at least in the US. The US mutual fund industry now has over 7000 individual mutual funds that collectively hold over one third of US financial assets. The number of mutual funds is almost twice the number of FDIC-insured banks, and most Americans do most of their banking through mutual funds. How so? Mutual funds are the principal repositories of their 401(k), IRA, and other tax-‐favored retirement accounts. A sizable share of these 10,000 mutual funds is involved in credit provision. And roughly half of mutual fund assets are credit instruments.
Another example of the use of mutual funds to provide credit, specifically mortgages, is the covered-‐bond markets of Denmark, Sweden, and Germany. The covered bonds are offered by banks through what looks, to a very large degree, like mutual funds. Indeed, if the banks selling covered bonds were precluded from insuring bondholders against default risk, the covered bond markets in Europe would simply constitute LPB mortgage mutual funds.
Moreover, large borrowers have been voluntarily bypassing the banks over the last quarter-‐century, and borrowing most of what they need from the capital markets. In other words, they are already getting most of their credit from the kinds of mutual funds that LPB would expand.
Using Cash Mutual Funds for the Payment System
Under LPB, cash mutual funds would be used for the payment system. Cash mutual funds hold only cash, which is placed in reserve with the Federal Reserve, pay no interest, and never break the buck. They are the only mutual funds that don’t break the buck, for the simple reason that, apart from the fees charged for holding investors’ cash, there is always one dollar for every dollar invested.
If a Reserve Primary Fund (the huge money market fund that went under in 2008) wants to purchase ‘safe’ securities, like AAA-‐rated Lehman Brothers bonds, that fact will be disclosed in broad daylight on the web. So no one can claim they didn’t know what was being done with their money. Such money market funds would be marked to market on a continual basis, and the mutual fund holding company sponsoring the mutual fund would be precluded from using any of its assets to support the buck of any mutual fund. Hence, from day 1 of the introduction of LPB, some money market mutual funds will break the buck and the public will get used to that happening.
Holders of cash mutual funds would access their dollars at ATMs, via writing checks, or by using debit cards. Thus, cash funds represent the checking accounts of the new financial system and are used for the payment system. This is the ‘Narrow Banking’ component of Limited Purpose Banking. But as is clear, LPB goes far beyond Narrow Banking. It doesn’t simply keep the payment system perfectly safe. It keeps the entire financial system perfectly safe.
Idiosyncratic Insurance Mutual Funds
The mutual funds that insurers would issue would differ from conventional mutual funds. First, purchasers of such insurance mutual funds would collect payment contingent on either personal outcomes or economy-‐wide conditions or, potentially, both.
This lets people buying an insurance mutual fund share risk with one another. Second, they would be closed-‐end mutual funds, with no new issues (claims to the fund) to be sold once the fund had launched.
Take, for example, a three-‐month, closed-‐end, life insurance fund sold to healthy males aged 50 to 60. Purchasers of this fund would buy their shares on, say, January 1, 2011, and all the monies received would be invested in three-‐month Treasury bills. On April 1, 2011 the pot, less the fee paid to the mutual fund, would be divided among those who had died (their estates) over the three months in proportion to how much they contributed.
Hence, Limited Purpose Banking permits people to buy as much insurance coverage as they'd like. The most important feature, though, is that these insurance mutual funds pay off based not just on diversifiable risk, but also based on aggregate risk. That is, if more people die than expected, less is paid out per decedent.29
For students of financial history, this is simply a tontine, a financial security that dates to 1653. Tontines were an everyday financial institution for over two centuries. The French and British governments raised money by issuing tontines. The New York Stock Exchange first met under the buttonwood tree, but its members quickly moved into a drier, warmer space, named the Tontine Coffee House.
Tontines were paid off to shareholders if they lived, not if they died. But the payoff can be predicated on death or any other idiosyncratic risk, including property losses, disability, medical costs, accidents, etc.
In all cases, the fund’s pot is given and is paid out to the ‘winners’ (those suffering a loss). Since these are fully collateralised bets, there is no liability visited upon unsuspecting taxpayers. The pot of this and all other LPB mutual funds constitute natural financial firewalls – something that is desperately needed and entirely missing from our current financial system.
To repeat, if and when a virulent form of Swine Flu really hits, our current financial system is set up to ensure not just widespread human death, but also widespread financial death. LPB is set up to ensure the financial system is unaffected.
Parimutuel Insurance Mutual Funds
The final point is that insurance mutual funds can be set up to bet exclusively on aggregate outcomes, like a particular company going bankrupt or the nation's mortality rate exceeding a given level. Shareholders in such closed-‐end funds would specify whether they were betting on the event occurring or not. If the event occurs, those betting on the occurrence take the pot (the holdings of the mutual fund less the fee charge by the mutual fund managers) in proportion to their shares. If the event doesn't occur, those betting against the occurrence take the pot based on their shares.
If bets like this on non-‐personal outcomes sound familiar, there’s a reason. This is simply pari-‐mutuel betting, which has been safely used at racetracks around the world since 1867. There is no recorded instance in which a bet on a horse at any racetrack ever cost taxpayers a single penny.
Let’s consider some examples of LPB pari-‐mutuel funds. Suppose the elderly want to bet with the young on whether mortality exceeds a given rate. The elderly would bet on low mortality, because if mortality is low their longevity (annuity) tontines would pay less. The young would bet on high mortality, because if mortality is high, their life insurance tontines would pay less. So each side hedges the other. This is allocating aggregate risk, which a proper financial system needs to do. It is not insuring against aggregate risk, which no financial system can do.
What about modern financial instruments like CDS and options? Do they disappear? Not at all. LPB combines modern and ancient finance. A closed-‐end parimutuel fund that entertains bets on a company’s stock exceeding a given price on a fixed date is just an option. A credit default swap (CDS) is a parimutuel fund that stages bets on a company’s defaulting on its bonds over a fixed period of time. A collateralised debt obligation (CDO) is a mutual fund that invests in particular types of loans and pays out the pot to shareholders based on pre-‐specified sharing rules. These clear sharing rules allow the different parties to take more or less leverage vis-‐à-‐vis each other, but they preclude leveraging the fund and, thus, the taxpayer.
LPB can thus provide the economy with as much legitimate leveraging as the population desires. This leveraging can, as just indicated, occur within mutual funds, or by mutual funds buying up the mortgages, notes, bonds, and other debts of households, small and medium-‐sized proprietorships and partnerships and corporations.
Under LPB, insurance mutual funds always involve fully collateralized bets. I.e. all the money in play is on the table, not in some banker’s imagination or in the pockets of taxpayers who need to bail out an AIG after selling nuclear economic war insurance in the form of unbacked CDSs.
Democratising and Modernizing Finance
LPB takes control of finance away from large, secretive, unaccountable banks, insurance companies, and other financial corporations and puts it in the hands of individuals via their mutual fund investments. Individuals who are very risk averse will buy shares of mutual funds that invest in shorter-‐term, safer assets. Individuals who are less risk averse will invest in mutual funds that hold riskier assets. Unlike the current system, the public will have a much better understanding of the risks they are accepting. And, most importantly, the public will no longer be exposed to the risk of losing their jobs and their lifetime savings through man-‐made financial system collapse.
Implementing LPB would be much more difficult without the internet, which would be used, not only as it is today, to manage mutual fund investments, holdings, and withdrawals, but also to disclose, in real time, mutual fund securities and to run the mutual fund securities auctions.
To some, the idea that traditional banking would disappear seems incredible. But the history of human progress is one incredible story after another. Traditional farming, traditional retailing, traditional horse and buggy transportation, traditional media, traditional everything has and will change.
The main reason we are still inflicted with a millennia-‐old financial system that has failed repeatedly through the ages is that traditional banking is being implicitly subsidized by governments, or rather politicians who are willing to bail out the banks when they get into trouble. This financial guarantee is not simply motivated by public interest. The financial sector is well adept at influencing the politicians through campaign donations and promises of very high-‐paying jobs once they leave office. Just check the principal contributors to the members of the House Financial Services Committee.
The introduction of parimutuel funds could bring forth much of the financial innovation that economics Nobel Laureate, Robert Shiller, and many others have been so passionately advocating. We should, for example, be able to bet with people from other countries that our economy will do poorly and theirs will do well. This will hedge us against the risk of recession. Such risk sharing would, under LPB, be run through a pari-‐mutuel fund where the bet is on US GDP growing, say, more or less than 3.5 per cent.
In general, there is nothing in Limited Purpose Banking that limits legitimate financial innovation. But illegitimate, highly leveraged, financial ‘innovation’, involving the sale of undisclosed snake oil, will be precluded.
Assuaging Concerns about Limited Purpose Banking
LPB doesn’t limit borrowing by firms or households. Indeed, thanks to the FSA’s services and the auction mechanism, it should enhance their ability to borrow as well as sell equity. This is particularly true of small and medium-‐sized enterprises.
LPB eliminates leverage by financial intermediaries, where leverage entails great macroeconomic risk. The fabled Modigliani-‐Miller Theorem in finance tells us that leverage doesn’t matter unless there are bankruptcy or information costs, in which case equity is preferred. In banking, bankruptcy costs are arguably as high as it gets, and the FSA is designed to dramatically reduce information costs.
In eliminating bank leverage, LPB eliminates the leverage intermediaries have over taxpayers during a financial crisis in credibly threatening financial meltdown if they aren’t bailed out. Eliminating fractional reserve banking will make the money multiplier 1, but it won’t reduce the money supply since the Fed can increase the monetary base, which will equal M1, as it sees fit.
Demand deposit contracts are not essential to maturity transformation, which is code for liquidity risk sharing. Charles Jacklin and others have shown that trading in securities can substitute for demand deposits. Demand deposit contracts may have some liquidity risk-‐sharing advantages depending on their construction in certain settings and circumstances compared to market-‐based insurance, but improving liquidity risk sharing in good equilibria appears to be very highly overrated relative to eliminating the risk of bad equilibria caused by runs.
The use of debt contracts to indirectly discipline bankers who can’t be monitored presupposes the bankers are bank owners, which is hardly the case, and that what bankers do can’t be disclosed, and thus monitored, which it can be via the FSA.
LPB mutual funds would include credit card debt and other lines of credit, whether to households or firms. But these lines of credit would be fully funded. I.e. the mutual fund’s unused lines of credit would be backed to the buck by cash holdings of the mutual fund offering the credit lines.
The FSA’s disclosure of household mortgages and other debt securities would not reveal the identity of the household. For example, in the case of mortgages, the location of the house being mortgaged could be specified within a mile of its actual location, with no mention made of the borrower’s name or specific employer. For households who are particularly concerned about their privacy being violated, there is an alternative available under LPB, namely to borrow from unlimited liability banks.
The FSA’s disclosure of each security would include evaluations of the security’s complexity and payoffs, both known and unknown, in specific states of the world. More complex securities with less well understood payoffs would be disclosed as such and, presumably, command a lower price when put up for auction. This would be for the good. Highly complex securities whose payoffs aren’t well understood are like bottles of Tylenol, but with extra pills included of unknown medicinal value. Such bottles needed to be properly labelled as ‘pills with unknown properties’ so that people that aren’t interested in random ‘medical’ treatments aren’t induced to buy what they don’t want.
In short, less may be much better than more when it comes to the number of complex securities initiated in the market place. With fewer, uniform, well-‐understood and fully disclosed securities, the job of the FSA will be much easier than it might seem. Also, it’s important to bear in mind that information dissemination is free once that information is acquired. Hence, having the FSA evaluate and publicly disclose securities obviates the need for financial companies (each mutual fund in the case of LPB) to engage in so much duplicative security analysis. I.e., the FSA will provide a critical public good — information.
Relationship banking doesn’t disappear. Mutual fund managers will specialize in learning about particular paper issuers prior to bidding on their paper to the extent that such knowledge acquisition has value. Thus, the FSA won’t preclude mutual fund managers from gathering their own private information and reaching their own judgments about the securities they might buy.
Finally, LPB permits unlimited liability banks to operate in the conventional leveraged manner. Hence, if traditional banking holds some hidden magic, unlimited liability banks will be able to capture that value. But if the unlimited liability bankers want to leverage and put the economy at risk, they will do so knowing they may lose everything they own. Switzerland, by the way, has several unlimited liability banks, which operate side-‐by-‐side with the country’s large banks. But this unlimited liability financial sector is quite small compared to the limited liability financial sector and, interestingly enough, is starting to issue mutual funds to naturally limit the owners’ liability.
Implementing Limited Purpose Banking
Implementing Limited Purpose Banking is straightforward. All financial corporations immediately begin marketing cash, insurance, and other mutual funds and the mutual funds start buying the FSA-‐processed securities at auction.
Checking account holders would be asked to sign an agreement transferring their checking account balances to cash mutual fund accounts. The government could provide a financial incentive to do this on a timely basis with all non-‐transferred checking account balances being remitted to their account owners at, say, the end of a year.
Banks would also offer their other creditors the option to transfer their credits, be they time deposits, certificates of deposits, or short, medium, and long-‐term bonds to mutual funds of similar longevity. Thus holders of time deposits and certificates of deposits would have their holdings of these assets transferred to short-‐term money market funds, which would purchase the short-‐term assets held by the bank.
Long-‐term bank creditors would be incentivized to swap their holdings for shares of mutual funds that specialize in long-‐term bonds, stocks or real estate. These mutual funds would then purchase these assets from the banks. In the case of real estate, the mutual funds would be closed-‐end funds, which don’t provide for immediate redemptions, but have shares that trade in secondary markets.
This swap of debt for equity in the banking system could occur gradually over several years. To encourage the switch, the government could also levy taxes on bank liabilities that have not been converted, after a given period of time, to mutual fund equity.
Hence, the transition to LPB is gradual with respect to unwinding existing bank assets and debts, and recycling funds out of banking and into the new, transparent financial system. But the transition is immediate with respect to issuing new mutual funds. Banks become zombies with respect to their old practices, but gazelles in exercising their new limited purpose – being the trustworthy financial intermediaries they claim to be and our country needs them to be.