Independent Commission on Banking Release Responses

The government’s Independent Commission on Banking have just published a summary of all the submissions they received, along with the submissions themselves. Their summary is available here. We’ll add to this as we analyse the submissions over the next few hours.

Positive Money’s submission got a reference in the summary:

” However, some did view fractional reserve banking as a problem, and called for the Bank of England to be the only creator of money in the economy.”

However, that was prefaced with the phrase:

“There was little support for the notion of narrow or limited purpose banks, for reasons  including the lack of feasibility and the value destruction such a measure might bring.”

Well of course not – very few people even understand how the current banking system works. The ‘value destruction’ referred to can only mean the £130bn in subsidies that the banking sector receives every year. As usual, this discussion of banking reform still views the banking sector as a wealth generator, rather than – more accurately – as a wealth extractor.

On the capital adequacy requirements:

“The Commission also received views on issues relating to bank capital, liquidity and loss absorbency in the banks. A majority, though not all, of responses on this issue saw Basel III as insufficient.“

We should remember that capital adequacy requirements are preparations for after the crash. They do nothing to make a crisis less likely. In effect, the Basel accords are concerned with ‘How big is the bank’s airbag? If a crash does happen, how bad can it be before the bank goes under?‘ Basel III is not the answer – it’s like the government making airbags mandatory in all cars, and then, because everyone is ‘adequately protected’, switching off all the traffic lights.

“Liquidity restrictions [I think this should read ‘requirements’] were seen as enhancing stability by some, but as increasing costs to consumers by others.”

Liquidity restrictions are pretty much the only thing preventing banks creating as much ‘funny’ money as they want. When they talk about liquidity requirements increasing costs to consumers, they completely overlook the fact that consumers, along with the rest of the economy, have to borrow the entire money supply from the banking sector, at a cost of around £110bn a year.

Conclusion

Despite the promising start to the Banking Commission, with the hints that it might be truly radical, it’s looking increasingly as though they will propose a slightly more robust version of ‘business as usual’. The economy will still be dominated and distorted by the few large banks based in the City of London. The money supply will still be owned by commercial banks, and banks will continue to extract wealth from the rest of the economy and offer very little in return.

But we do have a few tricks up our sleeves…