Wednesday, November 17, 2010

UK Banking Reform

Douglas Carswell recently introduced a Banking Reform Bill into the UK Parliament. His bill establishes the distinction between lending intermediary services account and custodial deposit account. His speech introducing the bill is worth a listen, because he hits the nail on the head. He explains that the problem with banking is that when I put my money in the bank, I think that I still own it, but banking law says that the bank owns it. That legal twist means the money has two owners, which leads to problems with runs on banks.

I was excited when I read his bill because his diagnosis of the problem and his proposal solution is very similar to the one that I outline in Bank Deposits and Loans. The only difference is that I refer to a safe-keeping service whereas he refers to custodial deposits, but they are exactly the same.

I hope that Douglas’s Bill succeeds, but I presume the financial powers will fight against it. They will not let such an essential change take place

The only thing that this bill lacks is my second proposal for sound banking, which matching of loans. His prescription for the lending intermediary service should specify that banks can only lend out money for the same term as that for which it is deposted. This would prevent Banks from borrowing short and lending long, which is the other problem with modern banking.

More at Money System

1 comment:

Anonymous said...

hello there thanks for your grat post, as usual ((o: