Systemic Failures in Traditional Finance
The traditional financial system is plagued by political influence, opacity, and collusion.
Last updated
The traditional financial system is plagued by political influence, opacity, and collusion.
Last updated
At its core, banking is a business of risk management. Financial institutions exist to assess, price, and mitigate risk—whether in lending, intermediation, or asset management. This position allows them to dictate the conditions under which capital flows, deciding who gets access to financial opportunities and who is excluded. Over centuries, banks have built opaque and self-serving mechanisms that concentrate power, prioritize regulatory compliance over economic value creation, and reinforce systemic inefficiencies under the guise of "financial stability".
Banks primarily function in four capacities:
Lenders → Extending credit while assessing the probability of repayment and collateral quality.
Intermediaries → Facilitating capital flows between savers, borrowers, companies, financial markets, financial institutions and states.
Asset Managers → Allocating savings across investment portfolios to maximize returns while minimizing risk exposure.
Financial Service Providers → Provide essential banking services such as payments, insurances, and deposit management.
Their supposed added value to society is based on:
Supporting businesses in creating value and fostering innovation to grow economy.
Helping individuals finance their personal projects, protect their financial situation and provide equal financial products and services.
However, while banks have mastered risk containment, they have failed at risk optimization. The system has evolved into a highly centralized, bureaucratic, and risk-averse industry that prioritizes discutable stability over efficiency, control over access, collusion over freedom and legacy structures over innovation. Instead of dynamically allocating capital where it creates the most value, banks have built a fortress of financial exclusion, inefficiency, and systemic inertia.
To understand why banking is ripe for disruption, we must dissect how its risk-management framework has become a bottleneck for financial progress.
Banks, as primary credit allocators, are supposed to channel liquidity into productive investments while managing systemic risk. However, modern banking has shifted towards a rigid, risk-averse framework that prioritizes predictability over economic dynamism. This results in capital misallocation, where financing is directed toward low-risk, high-certainty investments rather than fostering innovation and entrepreneurship.
Key Issues:
People as Collateral – Banks do not take real economic risks. Instead of evaluating the intrinsic value of an investment opportunity, banks assess creditworthiness through rigid individual financial metrics (e.g., salary, tax records, credit history). This model disproportionately excludes entrepreneurs, self-employed individuals, and anyone with non-traditional income streams or lifestyle, even when their personal or professional projects demonstrate clear financial viability. The consequence is a system that finances predictability rather than productivity.
State-Enforced Financial Control – The tight integration between banks and regulatory bodies enables aggressive enforcement mechanisms such as asset seizures and credit sanctions. Rather than fostering financial inclusion and opportunity, the system operates on coercion—penalizing individuals instead of optimizing capital efficiency. This reliance on legal threats, rather than sound financial assessment, entrenches exclusionary and inefficient practices.
Monetary Privilege & Liquidity Control – Through their monopoly on money creation (fractional reserve banking), banks dictate liquidity flows based on opaque risk models and political incentives rather than genuine market demand. This centralized control distorts capital allocation, favoring government debt and large corporate borrowers at the expense of dynamic, smaller-scale economic actors.
Bureaucratic Decision-Making & Standardization – Lending decisions are dictated by predefined templates, forcing borrowers into rigid financial molds. Instead of holistic project assessment, banks apply arbitrary debt-to-income ratios, work contracts and other compliance-based requirements. If an applicant does not fit these standardized profiles, access to credit is outright denied—regardless of the project's economic potential.
Risk Aversion & Failure to Assess Innovation – Banks function as financial conservators rather than catalysts for innovation. Their risk models are designed to favor low-volatility, asset-backed lending while systematically overlooking high-growth and high-impact projects. Lacking both the framework and the incentive to evaluate business models, banks consistently underfund the very sectors that drive economic progress and technological advancement.
In essence, banks do not finance the future; they perpetuate the past. Their function as lenders has become a mechanism for maintaining the financial status quo rather than enabling economic transformation.
Banks present themselves as indispensable intermediaries, controlling access to financial markets and determining who can participate in wealth generation. However, instead of acting as neutral facilitators, they impose structural barriers that favor incumbents over emerging players and extract excessive value from financial flows.
Key Issues:
Selective & Restricted Market Access – Banks structure financial products primarily for institutional investors, limiting retail access to high-yield opportunities such as private equity, venture capital, and structured derivatives. By monopolizing these investment channels, banks gatekeep financial innovation, offering preferential terms to institutions while restricting retail investors to low-yield, high-fee, or speculative financial products.
Collusion with the State: The close relationship between banks and governments enables financial institutions to structure and promote financial products for political and control purposes rather than for people freedom (e.g. crypto-ban). State-directed financial incentives distort free markets and misallocate capital toward politically favored sectors.
Systemic Risk Accumulation: Banks operate with opaque risk models, bundling financial assets into increasingly complex derivative structures. The 2008 financial crisis demonstrated the dangers of misaligned incentives, yet little has changed in ensuring transparency and accountability. Rather than mitigating systemic risks, banks externalize them, making financial crises more frequent and severe.
Redundant and Costly Intermediation: Traditional financial systems rely on multiple layers of intermediaries, each extracting fees and reducing capital efficiency. These unnecessary middlemen inflate transaction costs, ultimately burdening end users while providing little to no added value.
By centralizing financial access and imposing barriers to participation, banks perpetuate a system that benefits the few at the expense of the many. The cost of accessing financial products remains artificially high, and opportunities for true financial inclusion are deliberately restricted, under the pretext that people are incapable of understanding.
Banks, through their asset management divisions, control vast amounts of capital and decide where money flows. However, rather than optimizing economic productivity, they allocate capital based on internal incentives, regulatory pressure, and risk aversion, often leading to inefficiencies and systemic misallocations.
Key Issues:
Maintaining Financial Ignorance: Banks are incentivized to keep individuals from taking control of their savings, as greater liquidity concentration increases their power and profit margins. For instance, a significant portion of people (probably your parents) hold their wealth in fiat currency, which generates interest for banks while providing no returns to savers.
Regulatory Distortions: Rather than acting in the best interest of depositors and investors, banks often allocate capital based on government incentives, financing non-profitable projects to maintain political ties rather than generating returns. For example, banks are required to hold government bonds for their customers due to capital adequacy requirements, diverting capital away from productive investments that could drive economic growth.
Passive Capital Hoarding: Large financial institutions prefer accumulating low-risk reserves over financing real economic activities, significantly reducing economic velocity and reinforcing financial stagnation.
Retail Investors as Exit Liquidity: Retail investors are typically excluded from high-yield investment opportunities until late-stage market cycles, when institutional investors exit their positions and transfer risk downstream.
Opaque Capital Allocation: Asset allocation decisions are made behind closed doors based on institutional priorities rather than market demand, preventing an efficient capital distribution.
Rent-Seeking Behavior: By charging excessive fees on fund management and investment products, banks extract value from investors rather than creating long-term financial growth.
Inability to Assess Innovation Risk: Banks impose outdated financial assessments on emerging companies. Requiring a 10-year business plan from a startup that has existed for only six months illustrates their failure to understand how modern business models operate, ultimately hindering innovation and restricting economic evolution.
Beyond lending, intermediation, and asset management, banks provide essential financial services such as payment processing, deposit custody, and transaction management. Rather than providing these services efficiently, they monopolize access, impose restrictions, and extract excessive fees.
Key Issues:
Fiat-Centric Financial Infrastructure: The entire banking system is designed around fiat money, which is subject to inflationary policies, central bank manipulation, and systemic devaluation, ultimately eroding purchasing power.
Predatory Fee Structures: Access to basic financial services—such as payments, credit cards, and overdraft protection—comes with hidden fees that disproportionately harm lower-income users.
Exclusion by Design: Over 2 billion people worldwide lack access to banking services, not due to lack of demand, but because the financial system systematically excludes low-income populations to maintain profitability.
Regulatory Overreach & Privacy Intrusion: Banks require excessive documentation (e.g., tax records, proof of residence) even for the most basic financial services, making financial inclusion unnecessarily complex and invasive.
Custodial Abuse: Depositors do not have true ownership of their funds—banks freeze, block, and restrict transactions based on nonsense compliance rules, often without recourse.
A System Designed for Control, Not Growth
Banks have evolved into institutions of control rather than enablers of financial progress. Their roles in lending, intermediation, asset management, and basic financial services have been distorted by risk aversion, rent-seeking behavior, and monopolistic practices.
The system isn’t broken; it is constrained by design. If finance is to serve innovation and individuals—not bureaucracies and elites—it must be redesigned from the ground up. The future of finance isn’t just digital. It’s about freedom.
