ON THE OBSOLESCENCE OF COMMERCIAL BANKING

This paper considers the obsolescence of commercial banking from the p erspective of economic history. As a result of the enormous growth in money markets, it is now possible to operate a payments system in whic h liabilities payable on demand are backed by a diversified portfolio of liquid securities. Such a payments system, sometimes known as ''mut ual fund banking,'' is theoretically preferable to traditional commerc ial banking because it is not subject to the risk of runs or panics. T he advantages of mutual fund banking are now being demonstrated in the US marketplace, with the impressive growth of money market mutual fun ds with checking privileges.