Starting a Bank Is a British Town’s Solution to Funding Cuts
This makes a lot of economic sense to me. Governments can capture some positive externalities through their ability to impose taxes on the catchment area of those activities. There&#x27;s therefore some things that make sense for governments to do but not private actors - infrastructure is a great example of this.<p>For loans, there&#x27;s some that would make sense for governments but not private banks. Suppose a dollar of this loan has an expected value of 99 cents for the bank, while generating $2 worth of taxable economic activity at a 10% rate. Private banks would lose a penny, municipal governments would make 19 cents.<p>It does leave two big questions. First is how big this class of loans actually is in practice. If there&#x27;s not much there, the overhead of running it through government doesn&#x27;t make sense. Second is how to keep incentives aligned and un-corrupted. I&#x27;m pretty worried that &quot;drive economic development&quot; will become a pretext for &quot;give handouts to friends and political supporters&quot;.