Douglas Carswell’s Private members bill has been published by the House of Commons, and can be read in its original form on the link below. The second reading of the bill is due to occur this Friday (19th November) in the House of Commons.

Download the bill here: Financial Services (Regulation of Deposits and Lending) Bill (from UK Parliament website)

What Does It Do?

Although the bill keeps it short and sweet, it implements full-reserve banking within the existing financial infrastructure. It requires banks to offer two types of account:

1. A ‘custodial’ account – any money that you put into a custodial account will remain your property, rather than being the property of the bank. Consequently, the bank will not be permitted to use this money to make loans or invest. Such an account would offer all the same services that you get from your current account, and wouldn’t need to be guaranteed by government (because the money would remain in that account waiting for you to withdraw it).
2. A ‘lending intermediary’ account – any money put into these accounts would effectively be a loan from you (the saver/investor) to the banks (who would be the borrower). The bank could then use this money to make investments and loans. As the investor/lender, you would lose access to the money whilst it is being invested, and would need to agree the date (or fixed notice period) upon which you want the money back.

Basically, banks under this system would invest the money that you want investing, and keep safe the money that you want to be kept safe. They would no longer keep up the pretence that the money in your current account and savings account is safe when they have actually  used it to make a loan to a NINJA (no income, no jobs or assets) in sub-prime America.

Benefits

• This would remove the need for deposit insurance, meaning that the taxpayer would not be liable for failing banks
• It would make banks significantly more stable and immune to a bank run
• It would indirectly make it impossible for banks to ‘extend credit’ – in other words, to create money out of thin airs – and would therefore remove the subsidy that the public pays to the banks every single year by allowing them to be the monopoly supplier of money to the real economy.

A much more detailed proposal for full-reserve banking is given in Positive Money’s submission to the Independent Banking Commission.