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Banking Post the World Financial Crisis - Summary Banking Post the World Financial Crisis - Summary     (Back to list)
Posted by David (2) on 2008-Oct-14   21:27

As we watch Governments bailing out the banking industry globally through injecting massive amounts of cash, it occurs to me that there may be a way of setting out a new framework for banking and financial services in the future. This idea needs more work but the bare outlines are given in the bullet points below.

Rather than worrying about partial privatisation, perhaps we should make this potential sin a virtue. It is clear that the moral hazard placed on Governments by Bankers gives them a one-way bet. Also, the profits from Banking needs to be shared out more equitably. This proposal attempts to do just that. So here are the proposals in bullet point form.

Outline

  • Create UK National Bank with the monopoly on Fractional Reserve Lending (FRL)
  • UK National Bank to be run as an arms length agency but guaranteed by the Government with a targeted return on investment to be established by an independent committee appointed by the Government
  • Other Finanacial Services (FS) companies become intermediary service companies rather than banks with no power to create money
  • FS Intermediaries will not be guaranteed by the Government and shareholders will be exposed to the full business risk
  • The Financial Services Authority (FSA) will monitor all financial intermediaries and be responsible for ensuring a free market
  • FS Intermediaries make money from managing the risk
  • Companies or individuals may borrow directly from the UK National Bank if they have good asset security but if they donít have security, they can go to one of the intermediaries who will take the commercial risk
  • Intermediaries must have a balance sheet assets that equates to their maximum liabilities but if they have not, they can borrow from the UK National Bank the difference between their lending rates and borrowing rates is their gross profit
  • Profits from lending gained by UK National Bank will be used to offset taxation.

    For
  • Profits from safe lending go to the real risk takers, the tax payers
  • If managed well could significantly reduce the tax burden
  • Governments will have visibility over financial transaction
  • Provide a safe haven for funds for the risk aversed
  • Provide Governments better access to funds to finance spending
  • Still allow a market in financial services and enable product innovation

    Implementation
  • Already partly there as a result of the World Financial Crisis
  • Details need to be worked out

    I shall post a thread giving a more detailed description of this in the near future

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