Moral Decline
Firstly, it is argued that in modern times when the level of individual morals is deplorable, what is the guarantee that the businesses financed by banks will show the correct level of profits? Market forces will themselves tend to take care of this problem to a great extent once the system starts operating. There will not be just one or two businesses borrowing from the banks. There will rather be thousand of those who try to cheat will become exposed by the result they declare compared with those who are honest. They will hurt their own long run interest by getting a poor credit rating. This will deprive them of financing in the future, because these ratings will only be mutually circulated by banks but will also become publicly available.
Moreover, certain institutional arrangements will need to be made to protect the banks and to facilitate their task. These may include the establishment of a number of auxiliary or shared institutions in the private sector, with the help of the central bank and the commercial banks, to collect data about firms, to determine their credit rating, to evaluate projects and to audit accounts of businesses referred to them by banks.57 Since businesses may not wish to get a poor credit rating or to be exposed to the rigours of audit by such organizations, they may find it in their own self-interest to declare the correct profit.