In the article titled "Narrow Banks Won't Stop Bank Runs" the proposal to have narrow banks is discussed. According to the article, the concept of narrow banking has been put forward by a group of economists who believe that it is the best solution to bank runs (Cecchetti, & Schoenholtz, 2017) . However, in this article, the central argument is that narrow banking will not eliminate the problem of bank runs.
Bank runs is one of the major problems facing traditional banking institutions today. It refers to situation bank customers withdraw their money in large numbers simultaneously. Bank runs often occurs when customers are having doubts about the solvency of their banking institutions. Given the fact that traditional banks are only required by law to have half the reserve, bank runs can lead to situations where banks are not able to cover all the withdrawals. According to Cecchetti and Schoenholtz (2017) , bank runs increases the probability of banks defaulting on their customers. The proponents of narrow banking seek to have banks have full reserves the same way that central banks do.
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The main idea behind the narrow banking concept is to ensure that there is the separation of the bank accounts from the other bank activities. The aim of the narrow banking concept is to address some of the inherent problems facing the traditional banking institutions. For instance, banks have been known to lend 90 percent of money deposited in transactional accounts and 95 percent of money deposited in total accounts (Wolf, 2009). Additionally, banks often take risks with depositors' money without the latter's consent. In the new proposal, banks are required to operate like mutual funds where depositors' money can only be used in a business after they willingly give the go-ahead for their money to be transferred to the lending accounts (Cecchetti, & Schoenholtz, 2017) . Under the narrow banking schema, it is proposed that if banks cannot meet the conditions then the depositors' money should be kept as liquid cash or deposited directly with the central bank.
Objectives of Narrow Banks
The main objective of narrow banking is to ensure that taxpayers do not have to bail the banks every time they fail. Additionally, narrow banking seeks to prevent banks from mixing risks with depositors' money (Wolf, 2009). From the depositors' perspective, narrow banking is a good thing because it gives them the complete control over how their money is used. Lastly, the objective of narrow banking is to reduce the bank's incentive to take risks.
Pros of Narrow Banking
The most important advantage of narrow banking is that it reduces the cases where banks take a risky business adventure with their depositors' money (Cecchetti, & Schoenholtz, 2017) . From the depositors' perspective, narrow banking gives them the absolute control over what banks can do with their money.
Cons of Narrow Banking
In spite of the advantages associated with narrow banking, the concept of has also been criticized for being costly. The argument is that narrow banking is not good for economic performance (Cecchetti, & Schoenholtz, 2017) . The argument in the article is that mutual funds in narrow banks would be subjected to the same runs.
The Scandal is What is Legal
A financial collapse can occur because of a number of reasons. In the article "The Scandal is What is Legal" seeks to explain some of the reasons why financial systems around the world fail. The first reason given in the article is the capital inadequacy. The argument given in the paper is that a financial system with enough capital would be able to withstand whatever amount of shock (Cecchetti, & Schoenholtz, 2017) . A system with well oil capital system would withstand all types of shocks even the size of the home prices that occurred in the United States where prices fell by more than 30 percent. In other words, capital is considered a financial shock absorber for the financial systems around the world. With enough capital, banks have a cushion against the inevitable fluctuations in the value of assets held by banks.
Inadequate liquidity is another factor that can cause banks and financial systems to collapse. Without enough liquidity, banks may not be able to meet demands by depositors and creditors who may want to withdraw their money from the banks.
The other reason for the collapse of financial systems is the interconnectedness of intermediaries and their abilities to conceal risky operations. The fact that the law allows banks to conceal their risky behaviors makes it even worse for the financial systems because the problems may not be revealed until when things have gone out of hand.
The government regulatory policies such as the Rube Goldberg regulatory framework makes it impossible and extremely difficult for stakeholders to observe the financial systems and detect any potential risks involved in the activities of the banks. In other words, the framework under which banks and the U.S financial system is regulated is highly ineffective and outdated, hence making it hard for banks to operate with transparency (Cecchetti, & Schoenholtz, 2017) . Even though there are many federal agencies involved in the regulations of banking and financial systems, the operations of the agencies are no coordinated, hence there are gaps, loopholes, and inefficiencies in the system.
Conclusion
In conclusion, narrow banking is a concept that has been proposed as a way of dealing with bank runs. The idea is to give depositors more control over what banks do with their money. The aim of narrow banking is to reduce the risks that banks often get involved in.
References
Cecchetti, S., & Schoenholtz, K. (2017). The Scandal is what is legal. The Huffington Post.
Cecchetti, S., & Schoenholtz, K. (2017). Narrow Banks Wont Stop Bank Runs. Economists' View.
Wolf, M. (2009). Why narrow banking is not the answer to finance solution. Financial Times.
