Here’s something I’ve been quite frustrated about. As I’ve revisited “A” Level Economics, I still understand next to nothing about commercial banks.

I learnt a theoretical framework for how consumers make purchasing decisions. We learn about elasticity of demand- how if demand for a good is price inelastic, like say, cigarettes, then an increase in price will lead to a less-than-proportional decrease in the market-clearing output. So if you can make a lot of money from taxing cigarettes, and yet find that the decrease in smoking isn’t all that much. We learn about demand for consumer durables tends to be price elastic- if we expect prices in houses to fall in the future, for instance, even by 10%, we’re likely to put off our housing purchases- because the savings are a lot more significant.

But nothing about commercial banks.

We learn a theoretical framework for how firms make their pricing and output decisions. We learn about market structures- how you can use game theory to explain why oligopolies tend to have rigid prices- because nobody can afford to raise prices, while lower prices tends to initiate a race to the bottom where everybody loses. How price discrimination is utilized to maximise profit. Arguments for and against monopolies. (Typically, natural monopolies should be allowed to survive where artificial competition may lead to a lot of wastage- imagine if you had to build an entire separate system for delivering electricity to households, just to institute competition.) How larger firms utilize economies of scale to drive down costs- and how interest rates and the presence of sound government policies affect MNCs decisions when deciding whether or not to set up shop in a country.

But nothing about commercial banks.

I learnt how governments supposedly use monetary and fiscal policies to achieve their economic goals. In the former, you tweak the money supply- either through the manipulation of interest rates (if you have a large domestic economy) or exchange rates (if you have a small, open economy like Singapore). In the latter, you adjust taxation and government spending. Almost everything that is taught is fundamentally Keynesian in perspective– which I imagine makes it much easier to convince the public that stimulus spending is justifiable. (I’m not saying it isn’t- I’m saying I don’t know. But it’s easier to persuade people that something is a good idea if it vaguely resembles what they were taught in school.)

Next to nothing about commercial banks. (Apart from what is implied– that the government’s monetary policy must have some influence on commercial banks, because people surely do borrow from commercial banks- so if governments can raise or lower interest rates, the banks must be listening, right? The slightly less palatable (but perhaps more likely) possibility is that commercial banks are the ones running the show- perhaps they decide what they want, and the government listens. Am I wrong? I could be. I’m completely ignorant about this.

Why? Isn’t banking and finance the most prominent industry these days? Don’t we all (those of us who are online, at least) have bank accounts, or lives that are directly influenced by banks? We put our money in there, no? We have our loans financed by them. Banks are a huge part of our lives! It’s staggering how little we know about them!

Maybe banks don’t fall within the scope of Economics. But I doubt it. Economics is about scarcity and choice- about resource allocation. We study Economics to understand how people make decisions, how firms make decisions, how governments make decisions- surely how banks make decisions is important, too?

Maybe banks are too difficult for A-Level students to understand. I don’t buy this. Difficulty is a matter of complexity. We can always teach the basics. Perhaps we wouldn’t understand how mutual funds and hedge funds work- but I do think that it’s important that we know what they are. How our mortgages work, where the money goes. What is money, anyway? That’s a question we could actually explore for a really long time. Is it really a frivolous question to ask?

On a semi-unrelated note, I’ve always believed that credit cards should come with warnings, just like cigarette packs do. I imagine that credit card debt destroys lives just as much as cigarettes do, if not more so. And most smokers know what they’re getting themselves into. Credit card debt has the potential to do more damage, in my opinion. A smoker can destroy his own health, and maybe his immediate family’s. People in debt can do worse, methinks.

These are questions I’d like to explore in greater depth (I had typed ‘debt’, lol) once I’m done with my A’s. Keeping it specific to Singapore for now, I’d like to get to how little the average Singaporean knows about financial management- about CPF, Medisave, etc. These things are really important leh.

By the way, if you get nothing else from this post, I highly recommend watching this wonderfully entertaining video:

PS: I must state again that I really know nothing here. I’m already expecting to be schooled on my ignorance. Thanks in advance.