Douglas Carswell on Question Time: Rein in banks’ ability to create credit

This week has seen the UK’s major banks begin a concerted fight-back against regulation intended to make the banking system safer. And there’s some sign that politicians are minded to listen. Mark Garnier, a Conservative MP on the Commons Treasury Committee said, “We cannot keep using them as a whipping boy for political one-upmanship.”

In the banks’ sights are the bank levy and new ring-fencing rules, intended to separate retail and commercial operations from firms’ riskier investment banking arms.

The Chancellor is reportedly hoping to reassure the banking sector and “draw a line” under increasing regulation and taxation. An aide to George Osborne told the FT last week that “There is a sense that this is a settlement” on banking regulation and added “We are in a stable position.”

With the UK economy seeing record levels of personal debt and an overheating housing market, many Positive Money supporters will be troubled by the idea of a ‘settlement’ on the structure of our banking system.

This view was argued forcefully by Douglas Carswell during Thursday’s edition of BBC Question Time. He said,

“Until we rein in the ability of banks to conjure up credit out of thin air, and lend it on at a profit, and then send the tab to the taxpayer if it goes wrong… banks are going to be big, bloated and destabilising.”

It’s simple: while most of the money in economy is created by banks and lent into the financial and property markets, we’re doomed to repeat the mistakes of the past.

UK readers can watch Carswell’s comments from 5 mins 50 here.