Banking Is Slowly Getting Narrower — and Better

The US economy is now closer than it has ever been to realizing one of the more radical visions in the finance industry. Slowly but surely, through evolution rather than policy dictate, America is relying less on traditional banks — part of a reform known as “narrow banking.”

The basic idea is to separate lending and deposits: The banking system would hold very safe assets, such as government bonds, thereby limiting the risks from bank insolvency and bank runs, as well as the moral hazard from deposit insurance. Loans would be made by commercial credit lenders and other non-bank sources. Better maturity matching on the loan side would make the economy more resilient.