#### **Abstract** Under the original New Deal framework for money and payments, rooted in the National Bank Act of 1864, banks in the U.S. operated as public utilities. Banks had exclusive privileges to expand the money supply, but were constrained by public utility standards to meet public convenience and necessity. This framework enabled financial stability for much of the 20th century. However, over time, deregulation has eroded these core principles, leading to a concentrated banking system that operates with limited government oversight, resulting in recurring financial crises. This paper proposes a new blueprint, the **New National Banking System (NNB)**, which seeks to restore and innovate on this historical model by treating banks as public utilities. The NNB is simple, structural, and can be implemented through incremental legal changes. #### **Introduction** The U.S. banking system is fraught with instability, evidenced by the financial crises that have occurred periodically since the deregulation wave that started in the 1980s. The collapse of Silicon Valley Bank (SVB) in 2023, followed by the failure of Signature Bank and First Republic, demonstrated that the system is still vulnerable to financial shocks. These failures, followed by government bailouts of uninsured depositors, highlight the fragility of the current banking framework. Historically, U.S. banking laws were built to avoid such disruptions. The National Bank Act of 1864 and later reforms during the New Deal era were designed to ensure that banks operated with public purpose, under tight regulation, while serving local communities. Over time, the shift toward shadow banking and financial conglomeration has weakened these safeguards. Today’s banking system is characterized by concentrated economic power, frequent reliance on government bailouts, and the extraction of rents by large financial institutions. This paper proposes a return to a public utility model for banks, via a New National Banking System, which will mitigate these problems. #### **I. What is the New National Banking System?** The NNB system treats banks as public utilities, tightly regulating their powers and responsibilities while providing them with special privileges. Member banks, under the NNB, will be private, investor-owned institutions but will operate under a clear framework of public obligations and restricted powers. ##### **A. Legal Structure** 1. **Member Banks**: Member banks under the NNB will operate under a uniform corporate charter that limits their activities. Their primary function is to manage and augment the nation’s money supply. These banks will issue account money (e.g., savings and checking accounts) and cash equivalents like certificates of deposit. Unlike today's banks, they will have fewer powers and will be legally prohibited from engaging in non-monetary financial activities, such as owning stocks or real estate, except as collateral. 2. **Monetary Authority**: The Federal Reserve will act as the primary regulator of the NNB, controlling the quantity of bank money issued and managing interest rates on deposits. The Federal Reserve will set limits on the money supply and the interest paid on member bank liabilities. This ensures that the banking system remains stable and prevents the excessive risk-taking seen in recent decades. 3. **Government Guarantee**: All bank money liabilities under the NNB will be fully guaranteed by the government, effectively eliminating the risk of default. This system expands on current deposit insurance programs by making all bank money non-defaultable, effectively preventing bank runs and ensuring stability. 4. **Franchise Fees**: Member banks will pay ongoing franchise fees to the federal government, calculated based on their risk profile and the quantity of money they manage. These fees act as compensation to the government for the exclusive privilege of issuing bank money and help curb excessive risk-taking. 5. **Portfolio Constraints**: Member banks will be required to maintain diversified portfolios consisting mainly of U.S. domestic loans and bonds. They will face strict limits on exposure to any single borrower or issuer, and prohibited from speculative trading or participating in derivatives markets. ##### **B. Economic Governance** 1. **Bank Money Creation**: The Federal Reserve will manage the amount of bank money that can be created by setting a cap on total money issuance. This cap can be adjusted as needed to manage economic conditions, much like the open market operations used by the Fed in the past. 2. **Universal Service Obligation**: Member banks will be required to operate in all geographic regions assigned to them, providing access to banking services for all individuals within their territories, including underserved communities. This system will ensure equitable access to financial services across the country. 3. **Capital and Supervision**: Member banks will face strict capital requirements, which will ensure that they remain solvent and minimize the government’s exposure to risk as the ultimate guarantor of bank money. The Federal Reserve will also conduct regular supervision of member banks, including annual stress tests, to assess their financial health. 4. **Ownership and Conglomeration Limits**: No single entity or group of investors will be allowed to own more than 5% of a member bank’s shares, and foreign ownership will be restricted. Banks will be prohibited from affiliating with commercial enterprises to prevent conflicts of interest and concentration of power. ##### **C. Public Utility Functions** Member banks in the NNB system will be obligated to serve the public good. This includes providing universal access to banking services, lending to underserved communities, and ensuring that all customers receive fair treatment. Member banks will be required to comply with strict consumer protection and anti-discrimination laws, with oversight from the Consumer Financial Protection Bureau (CFPB). #### **II. Why Establish the New National Banking System?** The current U.S. banking system is characterized by excessive concentration of power, regulatory gaps, and systemic instability. The NNB system addresses these flaws through structural reforms designed to enhance financial stability, improve access to services, and reduce the influence of financial conglomerates. ##### **A. Restoring Stability** The NNB system prevents the creation of shadow banking products and eliminates private, defaultable money substitutes, thus reducing the risk of financial crises. By enforcing portfolio constraints and regulating the creation of bank money, the NNB ensures that banks remain solvent and that the money supply grows at a sustainable pace. ##### **B. Curbing Too Big to Fail** Under the NNB, no bank will be allowed to control more than 5% of total bank money in circulation, limiting the potential for any one institution to become "too big to fail." This reduces systemic risk and simplifies the process of resolving failing banks without taxpayer-funded bailouts