Why are banks not like ordinary businesses?
A commenter on Robert Peston's latest article asks: why can't we just treat banks and building societies like normal businesses? And Mark Thoma also links to a similar question from Joseph Stiglitz: are the banks too big to restructure ? First an answer to Robert's commenter: The most obvious difference between a bank or building society and a normal business is that the government guarantees the deposits of a bank. If this didn't happen, the depositors would be creditors like any other. But the other distinction, which I'll come to in a few paragraphs, is that banks are much more closely embedded in the operation of the rest of the economy than most other companies. If they were to be treated as a normal business, then the liquidators would come in and start to sell off their mortgage book (probably at a discount) and the creditors (bondholders, depositors and suppliers) would have to queue up to get back whatever they could from the proceeds. If there was anythin...