References for Oxford Uni Debate on Future of Banking

Here are the references that I refer to in the Oxford University panel debate on the Future of Banking:

Our Reform Proposals

Our submission to the government’s Independent Commission on Banking can be found here.

Does Mervyn King Support Full-Reserve Banking?

It appears so, although he has to be diplomatic given his position. His original letter can be read here and you can read a brilliant speech on the issue of fractional reserve banking (the current system, which allows banks to create money) here.

Do Banks Really Create Money?

Don’t take our word for it – this is Martin Wolf, chief economics commentator for the Financial Times:

“The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending…”((Martin Wolf, Financial Times, 9th November 2010))
In other words, when banks make loans, they create brand new money (in the form of the numbers in our bank accounts). Here’s further confirmation from a Bank of England paper. Note that the term ‘bank deposits’ refers to the numbers in your bank account.

“When banks make loans, they create additional [bank] deposits for those that have borrowed the money” ((Bank of England 2007 Q3 Quarterly Bulletin, p 377))


So when you take out a loan from the bank, the ‘money’ is just typed into your account and created effectively out of nothing. Here’s further proof from Paul Tucker, Deputy Governor of the Bank of England and Member of the Monetary Policy Committee:

“…banks [make loans] (( In the original quote he used the term ‘extend credit’, which is a synonym for ‘make loans’. We’ve replaced ‘extend credit’ with ‘make loans’ in brackets to make it readable for anyone not familiar with banking jargon. )) by simply increasing the borrowing customer’s current account…That is, banks [make loans] by creating money.” (( Speech to BGC Partners, 21 January 2010. Original available here ))


Or this, also from the Bank of England:

“The money-creating sector in the United Kingdom consists of resident banks (including the Bank of England) and building societies” ((Bank of England Quarterly Bulletin 2007 Q3, p405))

That’s a very mundane way of saying that the creation of money in the UK has been privatised. In other words, banks are able to create all the money in the economy and lend it to us. This has a wide range of rarely-discussed consequences and effects upon the economy and society, and is surely something that we should be questioning in the wake of a huge financial crisis.

There’s more:

“… changes in the money stock [i.e. the total amount of money in the economy] primarily reflect developments in bank lending as new deposits are created.” (( Bank of England Quarterly Bulletin 2007 Q3, p378 ))

And if you need further proof, here’s a letter written by the Bank to a correspondent of ours (see the original here). He asked them:

Our Correspondent: “When a commercial bank makes a loan to a borrower, does the commercial bank in effect create new money? In other words, when a bank makes a loan to a borrower, is that ‘money’ just created out of thin air?”

Bank of England response: “When banks make loans, commercial banks do indeed create much of the money in the economy.” (( See the original letter here.))