The horror of war in Ukraine changes everything. It forces the world to recalibrate its priorities and convince democracies that they must fortify their economic security to maximize national security. It is more than luck that the United States possesses the economic power and banking system to orchestrate the imposition of global economic sanctions on Russia and any country that conspires with it. It is the result of two centuries of relentless commitment to entrepreneurialism and economic expansion. It has not always worked perfectly, but it has worked better than any other system on the planet.
The U.S. and other nations have equivocated about their need to maintain energy independence and are now paying the price. A war against climate change that reflexively shutters pipelines and delays drilling while the principal climate offenders in the world continue to mass-produce carbon-driven energy plays into the hands of the country’s adversaries and competitors. We need only look to Germany to understand how degrading its energy production resources in return for a bag of Russian beans produced an unhealthy addiction to Russian energy sources.
Notwithstanding the striking new prism that Ukraine provides to reevaluate these decisions, Europe has seemingly doubled down on trying to reengineer the etiquette of a way of life that may not continue to exist. On Feb. 23, the European Commission proposed imposing the legal responsibility, subject to penalties, to advance human rights and environmental sustainability to the boards of directors and managements of European Union (EU) and non-EU based companies. The EU’s timing could not be more stunningly ironic.
For the last two decades, Russian President Vladimir Putin has watched Western democracies culturally devour themselves worrying over a wide range of issues focused on creating more gentile, socially conscious nations. In the abstract, those ideals might be a great thing, but they must be viewed in the harsh light of the real world.
Democracies are limping from self-inflicted wounds and obsessive national guilt as authoritarian nations thumb their noses at them and race forward to dominate world affairs any way they can.
Consider the options that would have been available in the war in Ukraine had the U.S. not been able to deploy its economic might to implement sanctions. Left only with military and cyberwar options, it would have all but ensured that the world would be much closer to global conflict than it already is. And there are even bigger challenges ahead.
China has turned into a high-tech surveillance society that has created a global economic machine that manufactures much of the world’s goods as it strives to build the largest economy. It wants to convince the world to make a digital yuan the global currency as the dollar’s position continues to recede.
It also intends to dominate the mining of the globe’s rare earth minerals, the manufacturing of semiconductor chips and the development of artificial intelligence, quantum computing and 5G technologies — all by 2030. This is not a world where those with the best manners will survive to apply them.
The catastrophic developments in Ukraine should be a wakeup call for the free world. It may be shocking to realize it, but bad guys are bad and always will be. In the face of that stark reality, democracies need economic weapons to control the worst inclinations of such countries and avoid wars.
So far, the U.S. still enjoys dominance. But the longer that it presumes its position is certain, the more quickly it will erode. The U.S. is in a race with nations that are desperate to surpass it economically, militarily and technologically and won’t spend a minute twisting themselves into knots over environmental, social and governance issues.
That brings us to banks. Assuming we believe that world security turns on the United States continuing to have the economic and banking power to orchestrate the fiscal suffocation of renegade countries, if current trends continue, that may not continue for long. The U.S. has only one bank in the top five in the world measured by assets. J.P. Morgan Chase is number five, behind four Chinese banks. In 1970, the Unites States had four of the five largest banks, and seven of the top 10.
American financial power is steadily slipping, and with it the ability to ensure the country’s and the world’s economic and geopolitical stability. And what will have happen if the world giddily adopts some cryptocurrency or stablecoin as an alternative global currency and the dollar is not able to be used to impose sanctions to prevent global conflicts?
In the face of this reality politicians continuously seek to find ways to restrain U.S. banks and allocate credit based on the politics of the moment. But the empirical evidence says that in the last 50 years, the number of banks and savings institutions in America has dropped from approximately 20,000 to 5,000 as the market share of the top 10 U.S. banks measured by assets has increased from about 22 percent to 60 percent.
Some see this as a dangerous trend, but there is more liquidity, capital, credit and product availability in the financial system serving a broader range of customers than ever before. In the last decade alone, the number of unbanked Americans dropped by 3 percent.
Those who would handicap our financial system’s ability to run the race by arbitrarily fretting over issues long since obliterated by technology and world events to restrict the healthy growth of the U.S. banking system will now hopefully wake up and appreciate how economic power translates into geopolitical power. The U.S. knows how to regulate and nurture both a stable and powerful banking system.
We can address the need to maintain both a powerful economic machine and one that is safe and secure and that serves the interests of consumers and the planet. There are important roles for both large and community banks to take.
As long as we prioritize the maintenance of an economy and banking system that are powerful enough to protect our democracy, we will be on the right path. If we don’t, lesser priorities will never have a chance to matter.
Thomas P. Vartanian is executive director of the Financial Technology & Cybersecurity Center and author of “200 Years of American Financial Panics: Crashes, Recessions, Depressions And The Technology That Will Change It All.”