Banking

Bank regulation: Can we trust the Vickers Report?

In this response to the Vickers report, financial experts Tim Ambler and Miles Saltiel argue that the report's findings fail to address the root causes of the financial crisis and would create another layer of bureaucracy. Instead, the government should allow the creation of new "Trust Banks" that would be safely run, reduce arguments for protection of riskier banks, and introduce new competition to the high street.

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The Case for Nominal GDP Targeting

The recent economic crisis has exposed important flaws with inflation targeting, particularly the form practiced by real world central banks. A nominal GDP target can address the dual concerns of macroeconomic policy – inflation and jobs – with a single policy target. Had central banks pursued nominal GDP targeting during 2008, it is quite likely that both the financial crisis and the recession would have been much milder. Nominal GDP targeting works best when “level targeting” is used, which means making up for past underor overshoots, and also if the central bank targets market expectations of nominal GDP growth.

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Credit Crunch: The anatomy of a crisis

Published one year on from the part-nationalizations of Lloyds-HBOS and RBS, this report by John Redwood MP pins the blame for the financial crisis squarely on bad monetary policy from the Bank of England and misguided regulation and inadequate crisis management by the UK government . Redwood attacks the notion that the UK economy was well run in the period leading up to the crisis, and that its problems were imported from the US, making clear that while Britain's crisis may have had much in common with America's, it was in fact very much home grown. In addition to analyzing the financial crisis and its causes, Redwood also makes a series of recommendations for the future of the banking sector, as well the broader economic policies of the next government.

Read it here.

Economic Regeneration Through Banking Reform

It has been the commonly held view since at least the second world war that the way to bring about economic growth in the poorer parts of Britain was through government intervention; through negative measures such as industrial development certificates, and through positive measures such as subsidies, grants, and cheap loans. Equally, it has been commonly argued that the way to generate growth in general is through increased government spending, financed as often as not through inflation of the money supply. Both views have become progressively more difficult to sustain in the light of actual experience, of deprived areas remaining so despite the aid they receive (while the areas financing regional aid themsleves decline), and of periodic bouts of inflation creating transient growth at the cost of long-term depression and unemployment.

But, if failure is the predominant feature of post war policy the example of an earlier period might well indicate the way towards a more prosperous future. Between 1750 and 1844, Soctland raised its standard of living from half that of England to somewhere near parity and did it without government activity, interference, or control. The engine behind that remarkable record of growth was a banking system free of all but the most minimal restrictions and isolated from the activities of any central bank.

At a time when legislation is promised to complete the amalgamation of the Trustee Savings Bank Movement into a new national joint-stock bank, when the Royal Bank of Scotland is integrating its operations with its English affiliate, Williams and Glyns, and when non-banking financial institutions such as building societies are increasingly offering banking-type services, it would seem appropriate for a radical review of the regime within which British banks have to operate and the consequences that regime has created for their customers.

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The Suffolk Bank

A lucid account of the Suffolk Bank system which operated in Massachusetts between 1825 and 1858. Dr Trivioli shows that during this period a free enterprise central bank and clearing system operated with great success, bringing stability to a stuation where competing banks issued their own notes.

Read it here.