{"id":12444,"date":"2026-03-17T19:25:13","date_gmt":"2026-03-17T18:25:13","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=12444"},"modified":"2026-03-17T19:25:13","modified_gmt":"2026-03-17T18:25:13","slug":"with-other-peoples-money","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2026\/03\/17\/with-other-peoples-money\/","title":{"rendered":"With Other People\u2019s Money"},"content":{"rendered":"

Bankers are among the most disliked\u2014and envied\u2014figures in the world, because they privatize profits earned with other people\u2019s money and socialize losses through bailouts funded by taxpayers. It is therefore legitimate to ask why bank rescues sometimes prove unavoidable, but also how they can be prevented through simple rules and strong, independent authorities. It is equally important to consider how to redistribute banks\u2019 high profits to citizens\u2014not through one-off taxation, but by fostering a reduction in the costs that banks pass on to their customers. The current government\u2019s activism in banking restructurings has the opposite effect: it slows the development of our capital market and makes the Italian system even more bank-centered.<\/em><\/p>\n

 <\/p>\n

How to conduct one\u2019s business and accumulate vast fortunes \u201cwith other people\u2019s money.\u201d This is how, in 1914, the \u201cpeople\u2019s lawyer\u201d Louis Brandeis described the work of early twentieth-century American bankers, calling for greater competition in the financial sector. More than a century later, the public image of bankers has not improved. They remain among the most disliked\u2014and at the same time most envied\u2014individuals in the world, and the Global Financial Crisis of 2008\u20132009 further damaged their reputation. They are disliked because when they generate large profits, they keep them for themselves and their shareholders. But when they incur major losses, they shift them onto society, invoking their status as \u201csystemically important banks\u201d\u2014institutions whose failure could jeopardize the stability of the entire economic and financial system. In other words, banks privatize profits and socialize losses, and many bankers have continued to award themselves astronomical compensation even when they would have had to declare bankruptcy had it not been for public intervention\u2014funded by all of us.<\/p>\n

Why do governments bail out banks? What can be done to prevent bankers from using other people\u2019s money for their own purposes? And how can their profits\u2014not just their losses\u2014be, at least in part, socialized?<\/p>\n

Why Governments Rescue Banks<\/strong><\/h3>\n

As we explain in this issue of eco<\/em>, banks play a fundamental role in any economic system: they provide liquidity to firms and households, protecting them from unexpected events and financing those with promising ideas but insufficient funds. They facilitate the matching of savings and investment both across individuals and over time. Think of how often we have had to cover an unexpected expense without having the funds immediately available, but knowing we could repay it with future income. Banks allow us to manage these timing mismatches between expenditures and income.<\/p>\n

For these reasons, when banks enter into crisis, everything slows down: consumption, investment, and economic activity, dragging down the entire system. Banking crises are not like ordinary cyclical downturns. They leave deep scars and last much longer than typical recessions.<\/p>\n

What makes banks so essential also makes them vulnerable. Because banks do not keep all deposited funds in their vaults but instead use them to lend to those in need of liquidity, they cannot repay all depositors simultaneously if everyone withdraws at once. Government bailouts also serve to prevent widespread loss of confidence\u2014bank runs that could bring down the entire banking system, including well-managed institutions with substantial reserves.<\/p>\n

The problem is that, knowing that \u201cthe taxpayer will pick up the bill\u201d if things go wrong, bankers may be tempted to take excessive risks\u2014as happened with subprime mortgages in the United States, which triggered the 2008\u20132009 crisis. This brings us to the second question.<\/p>\n

How to Prevent Banks from Using Our Money for Their Own Ends<\/strong><\/h3>\n

Louis Brandeis criticized large banks such as Morgan Stanley not only because they used depositors\u2019 funds, but because they used them to finance companies in which they held significant stakes. In other words, they used customers\u2019 money to finance their own businesses. As he put it, they \u201clend a large part of these funds, directly or indirectly, to themselves and, more importantly, use them to prevent these funds from flowing to competing enterprises.\u201d<\/p>\n

This concentration of investment in \u201ctheir own firms\u201d also entails excessive risk, as it violates the principle of diversification\u2014putting all eggs in one basket\u2014while distorting competition. The best antidote to such behavior and conflicts of interest lies in transparency (\u201csunlight is the best disinfectant\u201d) and in the regulation of the banking and financial system. What is needed are simple, transparent rules and strong, independent supervisory authorities capable of enforcing them, ensuring disclosure of bank ownership structures and potential conflicts of interest.<\/p>\n

In recent weeks, much attention has focused on the risks posed by Donald Trump\u2019s pressure on the Federal Reserve in the conduct of monetary policy, particularly interest rate decisions. However, equally serious are the risks of weakening the Fed\u2019s supervisory role over banks, especially those that contributed heavily to the president\u2019s electoral campaign. The threat of prosecuting Jerome Powell, the current Fed Chair, ominously recalls the period when Paolo Baffi and Mario Sarcinelli\u2014Governor and Deputy Director General of the Bank of Italy\u2014were prosecuted (Sarcinelli was even jailed and stripped of supervisory responsibilities) for resisting pressure from Giulio Andreotti and Franco Evangelisti to rescue Michele Sindona\u2019s banks, restructure the debts of the Caltagirone family, and cover up the misconduct of the P2 lodge in relation to Banco Ambrosiano.<\/p>\n

Returning to the United States, Kevin Warsh, chosen by Donald Trump as the new Fed Chair, appears more credible than many sycophants occupying key positions such as the Office of Management and Budget. However, as Paul Krugman has documented on Substack, Warsh consistently voted in line with the preferences of the incumbent administration during his time on the Fed Board\u2014not exactly a strong signal of independence.<\/p>\n

How to Socialize Banks\u2019 Profits<\/strong><\/h3>\n

The Italian government has attempted, through three successive budget laws, to tax so-called \u201cexcess profits\u201d of banks, with clumsy measures and subsequent reversals, as we explain in detail in the following pages. On its third attempt, it managed to impose an extraordinary levy on banks. One can only hope that this does not repeat the experience of Giulio Tremonti\u2019s \u201cRobin Hood tax,\u201d introduced in 2011 on the excess profits of energy companies, which largely ended up being passed on to consumers through higher bills before being declared unconstitutional.<\/p>\n

We agree that banks\u2019 profits\u2014not just excess profits\u2014should be shared with society. However, this cannot be achieved through one-off taxes. High profits, when not linked to innovation, are often the result of insufficient competition. It is far preferable to redistribute before such profits materialize, rather than afterward.<\/p>\n

This month\u2019s chart shows that banks generate large profits not only when interest rates rise\u2014widening the spread between lending rates and deposit rates\u2014but also when rates fall, by keeping mortgage payments high. This happens because competition in the banking sector is insufficient. Comparative analyses of banking costs across EU countries confirm this: in Italy, fees on deposits are higher, and despite this, the spread between lending rates (charged to borrowers) and deposit rates (paid to savers) is larger. Italian banks earn roughly twice as much from lending as they pay on deposits, whereas in the EU-15 the ratio is typically 3 to 2. Consumer credit and mortgages are also more expensive.<\/p>\n

For this reason, one-off taxes on excess profits cannot effectively socialize bank profits. First, in the absence of competition, banks will pass these costs on to customers. Second, these profits are not truly exceptional but structural. What is needed are not temporary taxes\u2014likely unconstitutional if prolonged\u2014but long-term measures to foster competition and reduce the excessive bank-centeredness of the system.<\/p>\n

For example, effective portability of current accounts should be ensured; the opportunities offered by financial innovation (fintech) should be leveraged to improve service quality and reduce costs; and the capital market should be expanded, making it less dependent on banks.<\/p>\n

Italy\u2019s capital market is small by international standards and struggles to attract foreign investors. Its reputation affects our ability to attract external resources, support economic growth, reduce financial costs, and provide better diversification opportunities for savers. A government with a sovereignist orientation should promote a larger and more open capital market\u2014exactly the opposite of what is happening through its active involvement in banking consolidation. The impression is that certain mergers are being encouraged while others are blocked based solely on political considerations\u2014the long-standing desire of politicians to control \u201ctheir own bank,\u201d combining economic and political power. This recalls the Lega Nord\u2019s failed project of Credieuronord, a bank for Northern workers that collapsed ignominiously after losing \u20ac15 million just four years after its creation, before being rescued by Banca Popolare di Milano (BPM).<\/p>\n

This raises a question: is it perhaps to avoid revealing details of that rescue that the government opposed UniCredit\u2019s takeover bid for BPM?<\/p>\n

 <\/p>\n

P.S. The next issue of eco<\/em>, on newsstands from March 14, will focus on prisons.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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