SAFE Policy Lecture: Prof. Anjan Thakor, Ph.D. (Washington University in St. Louis)
Title: The Purpose of Banking: Transforming Banking for Stability and Growth
Speaker: Prof. Anjan Thakor, Ph.D. (Washington University in St. Louis)
Why do banks exist? An organizational higher purpose is one that transcends the usual business goals of the bank, but intersects them, and becomes the arbitrator of all business decisions. Surprisingly, this question has received little, if any, attention in research. Anjan V. Thakor first reviews the core economic functions banks serve. Banks create funding liquidity and private money by gathering deposits and lending money to borrowers who they screen, monitor, and develop lending relationships with. They provide safekeeping services for valuables, maintain the confidentiality of clients’ information, and develop trust. Banks process different sorts of information that help to reduce contracting costs and costs of verification of cash flows, asset ownership, and so on. The bank’s higher purpose should be built around the provision of these services and should then help to mold the bank’s culture. Thakor examines these issues in the context of banks whose higher purpose, corporate cultures and business decisions lead to a banking system that is financially stable and facilitates economic growth. He argues that the usual tradeoff between a stable banking system and one that promotes liquidity creation and high economic growth is false. He also discusses the regulatory implications of this in terms of capital and liquidity requirements as well as the optimal design of the banking system in light of the growth of fintech.
Anjan Thakor holds the John E. Simon Professorship of Finance and is Director of the Olin Business School’s PhD program, and Director of the WFA Center for Finance and Accounting Research. Among other academic positions, he has also served as Senior Associate Dean at the Olin Business School at Washington University in St. Louis. He received his PhD in Finance from Northwestern University. He is a research associate of the European Corporate Governance Institute and a Fellow of The Financial Theory Group. He has served as managing editor of Journal of Financial Intermediation from 1996-2005 and currently serves as an associate editor. Anjan Thakor has been recognized more than once as one of the most influential researchers in Finance worldwide.