Banking reform

I went to the David Hume Institute event last night.

The topic:

‘Narrow banking and all that – regulatory reform after the collapse of Scotland’s banks’

Speaker: John Kay

I'd guess that there were around 150 people there, with heavy representation from the banking world. Kay's argument was for the introduction of a regime of narrow banking.

Its purpose:

Their purpose is to ensure that taxpayers will never again be called upon to lay out unimaginably large sums of money to protect financial institutions, and to protect the real economy – non-financial businesses and users of financial services – from the consequences of mismanagement of financial services firms. The interests of the financial services sector itself are secondary to these primary objectives.

I think that Kay's plan is certainly better than what we have now. After the talk I asked Kay about the commodity-backed currency option and the role of fractional reserve banking. He thought that his narrow banking proposals were sufficient to mitigate the effect of the fractional reserve system. I'm not so sure, although I don't think that fractional reserve systems should be outlawed so long as everyone can see what the risks are.

An interesting anecdote. After leaving the University I walked down the road to a Lidl shop to get some milk. Ahead of me in the queue were around a dozen students. Every one of them paid for their purchases using plastic. I used a fiat currency note.