The current crisis represents systemic failure of private banking. The private nature of banks has created opacity, and exacerbated problems of liquidity, bad assets and capital shortage. Furthermore, private banks have failed in information gathering and risk management, as well as in mediating the acquisition of vital goods by households. It is paradoxical that, confronted with such systemic failure, post?Keynesian and other heterodox economists have generally made non?systemic reform proposals. This paper draws on Marxist theory to argue that systemic change is necessary, including conversion of failed private into public banks run transparently and with democratic accountability. Public banks could more easily confront the problems of liquidity and solvency; they could also play a long?term role by providing stable flows of social credit to households as well as to small and medium enterprises. Finally, public banks could provide long?term credit redirecting mature economies toward new economic activities.

At the core of the current crisis lies systemic failure of private banking both commercial and investment. The failure is systemic because the crisis has been caused by the interaction of several components of the financial system, above all, banks. No single element of finance is uniquely at fault, and nor has the turbulence been caused by malpractice in a small number of institutions. The failure is also systemic because several large commercial banks in the USA, the UK and elsewhere have been effectively bankrupt during 2008?9. Had governments allowed these to fail, it is probable that there would have been general banking collapse. On the other hand, mere prevention of bankruptcy through extraordinary measures has not resolved the underlying systemic banking problems. As a result, there has been persistent disruption of the supply of credit, exacerbating the global recession. It is unlikely that sustained accumulation will be restored without confronting the failure of banking.