Narrow banking

Narrow banking is a proposed type of bank called a narrow bank also called a safe bank. Narrow banking would restrict banks to holding liquid and safe government bonds as opposed to other equities (like loans) against depositor's money as opposed to other assets (such as gold as in the case of the Texas Bullion Depository or cryptocurrency as in the case of proposed banks like Custodia ). Making private loans or holding other depositors would be made by the other financial intermediaries along with only holding depositor money is what separates such banks from full-reserve banks. In other words, the function and operation of such banks is very narrow. That is, the deposit taking and payment activities would be separated from financial intermediation activities.

Background
Some early thought leaders in narrow/safe banking include:


 * Acharya, Sankarshan, Ph.D., from the University of Illinois at Chicago, who published an early paper titled "Safe Banking" in the J. of American Academy of Business, Sept. 2003, on the topic of narrow banking
 * Kevin James from the Bank of England who made a slide presentation to the Banco Central do Brazil (see: James, Kevin R., "The Case for Narrow Banking", May 2007, Sao Paulo, Brazil, https://www.bcb.gov.br/Pec/seminarios/SemMetInf2007/Port/KevinJames.pdf ) early on in this debate

In 2019, the Federal Reserve denied approval for such banks in the U.S., claiming that they would: interrupt implementation of monetary policy, threaten the repo market, and that the bank is 'too safe' and would thereby threaten general financial stability.

Tyler Cowen has argued that taken as a whole, recent changes by banking regulators in 2023 may be unintentionally leading to the emergence of a more narrow banking system of incentives in the banking industry, separating deposits and payments from financial intermediation like borrowing and lending.