A simple way to reform the banks
Tory MP Douglas Carswell has proposed a simple and effective way to force banks to lend well and to limit their ability to indulge in fractional reserve banking.
In my interview in the magazine this week - which subscribers can read here - I talk to Douglas Carswell. There wasn't space to look closely at his views on bank reform, but when I asked him what he would do to make the UK a better place, this came pretty near the top of the list.
So close is it to his heart that he even introduced a bill on the matter back in 2010, which you can see here.
The idea in a nutshell is that when customers visit a bank to deposit money, they should be asked to tick a box to say whether they consider the money to be a loan to the bank (in which case they may lend it out) or an actual deposit (in which case they may not) - ie whether the depositor or the bank retain ownership of the money while it is in the bank.
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This, says Carswell, would "organically solve the problem of reserve ratios. "If you run a very sensible bank and it has a good reputation" lots of people would allow you to loan their money out. If you did not they would not.
The result? An incentive for the banks to lend well and a limit on their ability to indulge in fractional reserve banking. Job done. More on this here and in particular here in an interview with Dominic Frisby.
The bill didn't get much support the first time around, but it is worth keeping an eye on the idea it appears to be gaining support.
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Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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