With the Greek banking fiasco continuing, I think this is a good time to reintroduce the concept of completely unregulated banking, usually known as "free banking." The following excerpts are from the post Why free-banking (I've added emphasis here and there).
The need for and convenience of a central bank are usually taken for granted. To say that a central bank is a good institution and, therefore, needed, is not enough. Unfortunately, the assumption that central banks are necessary seems to weigh more heavily than the facts that suggest otherwise. [...]Let's reiterate what free banking is:
Historical records, however, show that free banking outperforms central banks in most, if not all, of the cases.
A free banking regime is such where the market for money and banking is free of specific regulation (save, of course, illegal activities such as the violation of third party property rights.) Let me be clear. The absence of a central bank is not equivalent to free banking. The absence of regulation is equivalent to free banking.It's likely you're either completely unfamiliar or not particularly well-versed on the topic of free banking. However, there are more successful examples of free banking than you might guess and there are reasons they've worked well:
The literature on free banking is vast. Let me just give a brief description and comment on a couple of illustrative historical cases. First, under free banking, each bank is free to issue their own convertible banknotes. Convertible to what? To whatever functions as base money in the economy. Historically, this has been gold, but this does not need to be the case. It could be, like Selgin describes in his Theory of Free Banking, that the Federal Reserve shuts down the FOMC and that the USD becomes the base money to which private convertible banknotes are convertible. ...
Second, because all banknotes are convertible to the same base money, there is no multiplicity of units of account. Under this regime, there should be no fear of confusion about the multiplicity of prices. If today you travel to Hong Kong, Ireland, or Scotland, you’ll see a strong presence of private money in circulation, but you won’t see multiplicity of units of account. ...
Third, the stability of the system comes from banks competing with each other for deposits and therefore for base money. ... Free banking shows a remarkably good performance...Is free banking a viable possibility going forward? In the United States, I doubt it, but just considering how the concept works and its past successes give us the opportunity to incrementally improve the current system in order to avoid future problems such as Greece and Detroit:
If one looks at historical facts, rather than just let be guided by pre-conceived ideas, the need and superiority of central banking next to alternative monetary regimes is thrown into serious doubt. Surely, free banking is long gone and gold, which was used as base money under these cases, is not money anymore.
Why then look at free banking? I can mention at least two reasons: (1) To do away with the almost ideological position that a central bank is needed. This position, or assumption, needs to be questioned rather than taken as fact if we want to come up with innovative alternatives to our monetary regime. (2) Even if the old free banking system based on gold standard is not feasible, it certainly helps us to come up with reform that can improve the status-quo.And improving the status-quo of a highly regulated world wide banking system with frequent failures would be a very good thing.