Regulating the banks


by Rumbold
7th August, 2009 at 8:23 am    

Many people have discussed what to do about the banks. Burning Our Money provides one of the clearest debates I have seen to date about both the benefits and risks of regulation (it really is an excellent site):

“Crucially, we do have to split High Street retail deposit taking from investment banking activities – ie we need to implement our own Glass-Steagall Act (see this by the indefatigable Mr Stelzer).

The taxpayer has to guarantee high street bank customers against default on their own personal savings. Because history tells us that modern economies simply cannot operate if everyone keeps all their savings under the mattress.

But that is no reason to guarantee a bank’s liabilities to its wholesale creditors. They are mainly other banks and professional investors, and they should be required to consider the risk of default before ever committing funds. If they get it wrong, they should take the hit.”


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Filed in: Economics,Economy






8 Comments below   |  

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  1. The Common Humanist — on 7th August, 2009 at 10:48 am  

    So your endorsing a site that is praying for…..George Osbourne…….to become Chancellor….

    That is an…interesting economic position.

    But then as Ed Vaizey keeps pointing out ‘We (meaning the Tories) are not a party of ideas’. Quite.

    Vince Cable for No11! 1

  2. Rumbold — on 7th August, 2009 at 12:23 pm  

    TCH:

    I am not a fan of George Osborne. I don’t really know how much BOM like him either. But they really want the Labour party out.

  3. MaidMarian — on 7th August, 2009 at 1:20 pm  

    Well….

    There is a pretty good argument for the separation of retail and investment banking, especially in view of the last 18 months. Indeed, six months ago I imigaine I would have been on here shouting it from the roof-tops. But I just wonder if that would have been knee-jerk.

    Rumbold, what you are talking about here is the state dictating the terms of private business. Fair enough where taxpayers have had to prop up the banks.

    But not every bank has got itself into a pickle. Whilst I like the idea, what we are saying is that the state should take wholesale power over private banking business. However attractive the separation, I’m not sure I like much the idea of giving the state the sort of power you are talking about in the article.

    Would you suggest that the state should dictate spending and lending to people who have not been declared bankrupt?

    A better way would be to find a way to prevent banks becoming so big that they can not be allowed to fail – but in terms of giving the state excessive power over private business there are no easy answers.

  4. The Common Humanist — on 7th August, 2009 at 2:22 pm  

    Rumbold:

    “I am not a fan of George Osborne” Phew! Relief.

    MaidMarian:
    “There is a pretty good argument for the separation of retail and investment banking, especially in view of the last 18 months”

    There is a strong case indeed.

    “Whilst I like the idea, what we are saying is that the state should take wholesale power over private banking business. However attractive the separation, I’m not sure I like much the idea of giving the state the sort of power you are talking about in the article”

    As opposed to unelected, unaccountable private bankers whose greed and stupidity has brought us to disaster?

    And fairly soon a man, George Osbourne, who skant weeks before the September crash was giving lectures about the ‘dead hand of crushing state regulation on the financial sector’ (LOL!) will be running the economics of the UK. I shudder to think what he may do…..

  5. MaidMarian — on 7th August, 2009 at 5:53 pm  

    ‘As opposed to unelected, unaccountable private bankers whose greed and stupidity has brought us to disaster?’

    Unelected – well, yes – it is private enterprise. And customers are free to vote with their feet and go to another bank.
    Unaccountable – well, they are to shareholders. What the past 18 months has shown is that the banks were too big to be allowed to fail.

    My point though was what about those banks who did not need or take money off the taxpayer.

    I agree with the article that there, ‘is no reason to guarantee a bank’s liabilities to its wholesale creditors.’ But surely by that token there is no reason for the state to dictate what banks that are not in trouble can and can not do.

  6. Adnan — on 7th August, 2009 at 6:11 pm  

    “And fairly soon a man, George Osbourne, who skant weeks before the September crash was giving lectures about the ‘dead hand of crushing state regulation on the financial sector’ (LOL!) will be running the economics of the UK. I shudder to think what he may do…..”

    Pity he does not seem to get pulled up on this very often.

  7. anobody — on 7th August, 2009 at 11:33 pm  

    Unfortunately the UK has nothing more than it’s financial services sector, so whatever way you want to paint it, we are at the mercy of banks whether they are propped up by the taxpayer or not.

  8. Sunny — on 8th August, 2009 at 5:44 am  

    it really is an excellent site

    You’re a funny guy Rumbold ;)

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