Hans F. Sennholz’s “Woeful Bankers” is a brief single-author polemical economic essay, dated May 1995, on American banking under political money and regulatory command. Its scope is institutional rather than technical: central banking, deposit insurance, legal mandates, drug-war surveillance, and fair-lending enforcement are presented as forces that turn bankers from private intermediaries into agents of the state. The central thesis is announced through a moral analogy: the danger is not money itself but political authority over money.
An old Christian saying warns us not to make money our god, for it will plague us like the devil. Based on this maxim, a few economists admonish us not to place politicians in charge of our money, for they will plague us worse than the devil.
Sennholz builds the argument historically. The Federal Reserve Act creates “monetary authorities”; the 1933 gold expropriation and substitution of Federal Reserve notes deepen state control; FDIC and FSLIC extend the same logic to deposits. He then shifts from landmarks to accumulation, listing statutes on lending, savings, housing, reinvestment, electronic transfers, mortgage disclosure, banking reform, and environmental compliance. Regulation appears not as isolated correction but as cumulative encirclement.
Since then a myriad of special laws has tightened the political grip on the banking industry.
A central conceptual move is inversion. Terms associated with protection—insurance, safety, soundness, secrecy, fairness—are recast as mechanisms of surveillance and subordination. His sharpest example is the Bank Secrecy Act, which, in his account, arose from the “war on drugs” and made bankers responsible for reporting customers’ transactions. “Secrecy” no longer means depositor privacy but concealed reporting to government.
There is no bank secrecy in the sense of customer privacy; bank secrecy now means the very opposite: secret reporting to the authorities.
The middle of the essay narrows from public law to daily banking practice: loan-call logs, marital-status records, waiting periods, larger application forms, and repeated compliance examinations. Sennholz’s rhetoric is concrete because his point is institutional: ordinary judgment is displaced by procedure, paperwork, and fear.
Banking regulations are crushing the banking industry.
His discussion of the Community Reinvestment Act extends the critique from compliance costs to allocative control. Sennholz argues that political criteria supplant credit judgment, revealing the essay’s governing norm: banks should allocate capital by contract, risk, and creditworthiness, not by legal compulsion.
It compels bankers to grant loans on the basis of race, gender, and national origin rather than credit worthiness.
The final movement is predictive. Heavy compliance costs, he argues, will shrink the number of banks through mergers and concentration, because only large institutions can maintain the legal and regulatory apparatus needed to survive. In this view, regulation creates the very giants it can most easily supervise.
The regulators themselves undoubtedly will applaud the concentration movement as it simplifies and reinforces their control over the industry.
Sennholz also offers an anthropology of regulated institutions. Command systems select for obedience or corruption; independent bankers are replaced by functionaries and opportunists. The expected result is not merely fewer banks, but a deterioration of banking character.
Men of character, integrity, and independent judgment will give way to two types which thrive in all kinds of command systems: the servants and bondsmen who obey all orders and the villains who corrupt all orders.
The essay’s relevance lies in its compact libertarian/Austrian critique of financial regulation: intervention is cumulative, privacy yields to enforcement, compliance centralizes industry, and politicized credit weakens capital markets. Money-market funds, brokerage accounts, and foreign markets may absorb some functions, but Sennholz doubts they can replace private banking under a state that regulates capital comprehensively.
Political control over money tends to be comprehensive.
His closing claim links banking to national prosperity: rich countries differ from poor ones chiefly by the depth and vitality of capital markets. By burdening banks and politicizing credit, he warns, the United States risks reproducing conditions associated with poorer economies.
U.S. banking laws and regulations are straining to create the very conditions so characteristic of poor countries.
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