Traditional bank evolving into a futuristic cityscape, symbolizing banking innovation.

Banking on the Future: Are Traditional Loan Rules Holding Us Back?

Jordan Keane in Business & Economy August 2025 • 4 min read.

"Explore how rethinking old banking principles could unlock new economic possibilities and address modern challenges."

For centuries, the world of banking has operated under a specific set of rules, one of the most fundamental being the cancellation of loan principal. But what if these long-standing principles are not as relevant or beneficial as they once were? What if, by clinging to tradition, we are missing out on opportunities to create a more equitable and prosperous financial landscape?

Brian P. Hanley's research article challenges these very foundations, suggesting that it's time to re-evaluate the rationale behind loan principal cancellation and consider alternative approaches. This isn't just an academic exercise; it's a call to explore how innovative banking practices could address some of today's most pressing economic challenges, from wealth inequality to the risk of governmental overreach.

The central argument revolves around the idea that the traditional justification for canceling loan principal might not hold up in today's modern banking environment. The paper proposes a series of radical ideas that stem from deeper study of double entry bookkeeping in banking.

Why Rethinking Loan Principal Matters

Traditional bank evolving into a futuristic cityscape, symbolizing banking innovation.

The core concept challenges the standard practice of canceling loan principal upon repayment. The article suggests that this cancellation may not be as justified as we think, opening the door for alternative uses of these funds. There are three common reasons as to why this principle exists; A. Ancient history of debt as an obligation for repayment in goods or services, that is cancelled when paid. B. Fear of discovery in the murky history of banking. C. That the money created by a loan remains with the borrower that pays it off.

By re-examining this cancellation, the author opens up possibilities for channeling these funds in ways that could benefit the economy and society. One potential avenue is directing these repaid principals towards local and state governments, providing them with additional resources to fund essential services and initiatives. The paper provides that government must be in negative equity to keep the private sector in positive equity. Government must therefore provide constant deficts.

Boosting Local Economies: Imagine a world where your loan repayment directly contributes to improving your local schools, parks, or infrastructure.
Creating a Virtuous Cycle: By linking loan repayment to government funding, a direct incentive is created to foster responsible lending and economic growth.
Empowering Local Governments: Local governments gain greater financial autonomy, enabling them to respond more effectively to community needs.

But perhaps the most innovative idea is the creation of a new type of bank, one that focuses on investing in businesses that generate real utility value. This new class of bank would make 'at-risk equity loans' in enterprises that provide an abundance of value to our economy. In doing so, it could write off bad debt given that it was not loaned from another party. This money would come full circle through the success of the equity or money gained through equity.

A New Vision for Banking

The ideas presented in the article are not just theoretical musings; they offer a potential roadmap for creating a more resilient, equitable, and prosperous financial future. By questioning long-held assumptions and exploring innovative approaches, we can unlock new possibilities and build a banking system that truly serves the needs of society. It’s a conversation worth having, and a future worth exploring.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2010.10703,

Title: Cancellation Of Principal In Banking: Four Radical Ideas Emerge From Deep Examination Of Double Entry Bookkeeping In Banking

Subject: econ.gn q-fin.ec

Authors: Brian P. Hanley

Published: 20-10-2020

Everything You Need To Know

What is the core argument against the traditional practice of canceling loan principal, and why does it matter?

The central argument challenges the established practice of canceling loan principal upon repayment. It questions whether this long-standing principle remains justifiable in the modern banking environment. The article suggests that by re-evaluating this practice, we can explore alternative uses for these funds, potentially benefiting both the economy and society. This matters because it opens up possibilities for channeling repaid principals in ways that could address pressing economic challenges such as wealth inequality and governmental overreach, fostering economic growth, and promoting financial autonomy for local governments.

What are the primary reasons cited for the historical context of canceling loan principal?

The article provides three key reasons for the historical context of canceling loan principal. First, it references the ancient history of debt as an obligation to repay with goods or services, which is then canceled upon payment. Second, it highlights the fear of discovery in the murky history of banking. Third, it points out that the money created by a loan remains with the borrower who pays it off. These reasons are presented to provide context for why the traditional practice exists and to set the stage for challenging its continued relevance.

How could rethinking loan principal affect local economies and government funding, according to the ideas presented?

Rethinking loan principal could have a significant impact on local economies and government funding. The article envisions a scenario where loan repayments could directly fund local services like schools, parks, and infrastructure. This would create a virtuous cycle, incentivizing responsible lending and economic growth. Furthermore, it would empower local governments by providing them with greater financial autonomy to address community needs more effectively, leading to improved infrastructure and a better quality of life for residents.

What innovative concept for a new type of bank is proposed, and what unique functions would it have?

The article proposes the creation of a new type of bank focused on investing in businesses that generate real utility value. This bank would specialize in making 'at-risk equity loans' to enterprises that offer significant value to the economy. A key feature of this bank is its ability to write off bad debt, given that the loan was not sourced from another party. The funds would then come full circle through the success of the equity or money gained through equity, creating a more resilient and equitable financial model.

What are the potential implications of challenging traditional banking principles like the cancellation of loan principal?

Challenging traditional principles, such as the cancellation of loan principal, has far-reaching implications. It could lead to a more equitable financial landscape by addressing wealth inequality and governmental overreach. It could also foster economic growth by redirecting funds toward initiatives that benefit society and by empowering local governments. This shift could create a banking system that is more responsive to the needs of the community, leading to a more prosperous and resilient financial future. Ultimately, the goal is to build a banking system that serves the needs of society.