The real end of free banking - legislation introduced into Parliament

NeilW

Just in case the arcane nature of our banking system and the regulations isn't your daily bread and butter, I should perhaps point out this:

http://www.theyworkforyou.com/debates/?id=2010-09-15b.903.0

Financial Services (Regulation of Deposits and Lending) Bill.

Ostensibly this is a bill to outlaw fractional reserve lending on certain deposit accounts. The Hansard entry demonstrates the MP in question's woeful lack of understanding of how our money system works, but that's beside the point. All that mob friendly rhetoric is a cover for what the bill really proposes.

It would bar banks from lending money stored in demand deposit accounts. That means money in current accounts (and possibly linked savings accounts) simply has to be stored in vaults awaiting its owner's command - allegedly for 'consumer protection'.

And since a bank can't lend out the money, it can't make a profit on it - and therefore it can't cover the costs of running the bank account.

Essentially it would be the perfect cover to introduce current account bank charges, get rid of credit interest payments, and pass the blame onto parliament and the MPs.

Hopefully it will fall as these bills tend to, but it should be kept an eye on just in case.

Marv02

Interesting indeed.

A_Flock_Of_Sheep

Businesses have to pay for current account services so why shouldn't individuals. The banks would be more competetive as those that offered low charges would be popular and those with higher charges might be less crowded.

opinions4u

A_Flock_Of_Sheep wrote: »

Businesses have to pay for current account services so why shouldn't individuals. The banks would be more competetive as those that offered low charges would be popular and those with higher charges might be less crowded.

Eh?

The banks that charge nothing would be the cheapest. A bit like now really.

A_Flock_Of_Sheep

opinions4u wrote: »

Eh?

The banks that charge nothing would be the cheapest. A bit like now really.

So basically those that charge would have no customers and those that don't would have everyone.

AnonymousForObviousReason

NeilW wrote: »

Ostensibly this is a bill to outlaw fractional reserve lending on certain deposit accounts. The Hansard entry demonstrates the MP in question's woeful lack of understanding of how our money system works, but that's beside the point. All that mob friendly rhetoric is a cover for what the bill really proposes.

Essentially it would be the perfect cover to introduce current account bank charges, get rid of credit interest payments, and pass the blame onto parliament and the MPs.

Hopefully it will fall as these bills tend to, but it should be kept an eye on just in case.

Having read the story it's hard to criticise, regardless of being mob rhetoric friendly.

Are you basically saying that because banks are full of immoral corrupt business practices, we shouldn't introduce laws to enforce those basic morals, because they'll try to use it as an excuse to be immoral?

This seems to be to stop banks lending money they've borrowed from other banks and financial institutions because:

The lending would go round and round until, as we saw at the height of the credit boom, for every £1 deposited banks would have piled up more than £40-worth of accumulated credit of one form or another.

Do you not understand that the credit crunch is still here because institutions can't lend to each other in confidence? There is nothing solid behind the numbers on the balance sheets, credit is massively high priced because it's based on little more than a promise, if it goes wrong there is nothing there to cover the loans.

Credit was cheap because there was an oversupply of it. To put it into context of the £1 actual money equating to £40 of credit, this means that a 16 year old, who only has EMA payments as income but saved it means after a year his income leveraged a £62,400 loan. Money equivalent to that earned by an unemployed 25 year old created credit of £123,032 per year. In what way is that sensible?

Do you honestly think that we shouldn't bother to reform the system but carry on with the old one because it's easier for now?

Loughton_Monkey

NeilW wrote: »

It would bar banks from lending money stored in demand deposit accounts. That means money in current accounts (and possibly linked savings accounts) simply has to be stored in vaults awaiting its owner's command - allegedly for 'consumer protection'.

I can't see too much wrong with this. The Bill seems simply to divide bank accounts into pure "deposit" accounts, and others where onward lending is allowed.

It is patently obvious to anyone, that if you want to earn interest on your money, then the bank must lend it out to someone (e.g. a mortgage customer) at a higher rate than they are paying you. Thats how you earn your (sadly miserable amount these days) interest and it's how banks make their profits.

For those people who value safety more than interest can happily keep it "on deposit" knowing that it is safely there in the bank vault awaiting withdrawal.

I am hoping that this will make money supply (for lending) tighter, with the consequence of higher savings interest. I would say that (wouldn't I?) because I am a net saver.

gt94sss2

Loughton_Monkey wrote: »

I can't see too much wrong with this. The Bill seems simply to divide bank accounts into pure "deposit" accounts, and others where onward lending is allowed.

For those people who value safety more than interest can happily keep it "on deposit" knowing that it is safely there in the bank vault awaiting withdrawal.

Its not really a sensible solution - hence I suspect the bill has no chance of becoming law.

It would certainly make it harder/longer to come out of any recession/credit crunch and more raise the interest rates charged on loans/credit cards for UK individuals and businesses.

If it did become law, I would expect banks to offer 0% interest on "on deposit"accounts - and charge fees for such accounts.. to discourage them from being opened.

Regards
Sunil

Joe_Bloggs

Free banking is not free at present. It is more than adequately cross-subsidised by those that pay fees and/or forgo interest on account balances.
I would have thought that more informed and informing debate would have taken place before such a bill was presented. Perhaps I missed it.
J_B.

davidgmmafan

Personally I think the banks would be opening a massive can of worms if they all begn charging for an account. The moment the majority of people see themselves as paying for banking they will complain a lot more and do so loudly. This is just a hunch on my part, but a good one as I reckon most people see themselves (wrongly) as not paying for banking.

vaporate

A_Flock_Of_Sheep wrote: »

Businesses have to pay for current account services so why shouldn't individuals. The banks would be more competetive as those that offered low charges would be popular and those with higher charges might be less crowded.

What? lol

Charge for what exactly apart from providing a safe place to hold your money?

I would withdraw everything and the bank would lose out. And I would stash the cash under the floor boards.

Banks aleady benefit by providing crap interest rates on savings.