The End of Alchemy: Money, Banking, and the Future of the Global Economy

In This Review

 The End of Alchemy: Money, Banking, and the Future of the Global Economy
By Mervyn King
Norton, 2016
448 pp.
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King, who served as the United Kingdom’s top central bank official from 2003 until 2013, reflects on what the financial crisis of 2008 and its aftermath revealed about modern economies. It is not a pretty picture. He concludes that the existing business model followed by banks is no longer viable; soon enough, it will once again present political leaders with the dilemma of having to choose between massive bank bailouts and economic catastrophe. There are two fundamental problems: banks are still overleveraged, and they suffer from a mismatch between the liquidity and maturity of their assets and those of their liabilities during times of stress—which will inevitably occur from time to time owing to what King calls the “radical uncertainty” of modern, dynamic economies. In addition to serving up fascinating tidbits of banking history, King proposes a radical transformation of the contemporary banking system. Under his plan, central banks would agree to make loans to cover a bank’s short-term liabilities during a time of crisis as long as the bank had offered acceptable collateral ahead of time. This would greatly bolster the safety of banks but would also require a major revision of how they function.