The Role of Banks

Rapidly changing technology, financial innovation, and increased linkages among the world’s financial markets pose many challenges for commercial banks, other financial firms and markets, and their public regulators. History suggests, however, that while the challenges we face today may be unique, many are not fundamentally dissimilar from the problems others have faced in the past. For example, regulators now confront the issue of whether and, if so, how to regulate the issuance of private electronic money. In the nineteenth century, the private issuance of banknotes raised a similar regulatory question. A second example is the current problem, for banks, of increased competition from nonbank financial firms and markets that is associated with regulatory and technological change. As Eugene White points out in the first article in this Review, banks faced a similar challenge in the nineteenth century. The twenty-second annual economic policy conference of the Federal Reserve Bank of St. Louis focused on lessons from financial history for current policymakers, especially with regard to financial regulatory issues. The papers and commentaries presented at that conference and published in this issue of the Review are described briefly in this introduction. The specific topics of the articles vary widely, but they fall naturally into three themes: (1) the question of what makes banks unique and how differences in their structures might affect a country’s economic performance; (2) the evolution and effects of financial reform; and (3) the efficiency of alternative payments mechanisms.