Bank of England Head Mervyn King Proposes Eliminating Fractional Reserve Banking

[bobbyw24]

Mervyn King - the governor of the Bank of England - has proposed abolishing fractional reserve banking.

As the BBC noted last week:

Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he [listed] much more radical proposals.


1. Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.
2. The Volcker rule-style enforced breakup of banks into speculative and non-speculative arms.
3. The "Kotlikoff proposal", which forces banks to match each pool of risks with a requisite amount of capital, preventing losses in one spilling over into another.
4. Stunningly, Mervyn King imagines the "abolition of fractional reserve banking":


"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets."

King does not advocate any of these radical plans - but the fact that he goes out of his way to list them, and to place them on the agenda of the UK's Independent Commission on Banking, means that we are not yet at the end of the debate about long-term reform of the banks.

***

Beyond the technicalities, the fact that a central banker in a G7 country is prepared to imagine such outcomes is itself significant.

Moreover, King wrote to Ben Dyson and stated:

http://www.zerohedge.com/article/ban...eserve-banking

[Bern]

The root of all evil isn't money - it's the mechanism that allows money to grow unhinged. Bully on Mr. King for putting it on the table. He's got more guts than anyone in the USA's financial cabal.

[Travlyr]

Nice. It would have been even better if he had said, "and eliminate legal tender laws."

[hugolp]

Nice. It would have been even better if he had said, "and eliminate legal tender laws."

But then, what would a central banker do without legal tender laws? He would have to actually work and deliver a sound currency.

[Travlyr]

But then, what would a central banker do without legal tender laws? He would have to actually work and deliver a sound currency.

lol... I'm not holding my breath on eliminating legal tender laws, yet Ron Paul is trying!

[enter`name`here]

Wow could there be some form of trickery or is there actually a central banker with some modicum of decency and common sense? I am truly stunned to hear that come from the mouth of the head of the BOE. Its like hearing napolean bemoan the evils of an imperial state.

[Seraphim]

This is actually news. Wow that is a great step to be honest. A house of cards eventually gets exposed.

[DFF]

The bankers know the system is broken, and the only way to fix it now and keep themselves in power is to *gasp* "do the right thing"...Schiff and Ron Paul are gonna have a field day with this...

[Seraphim]

The bankers know the system is broken, and the only way to fix it now and keep themselves in power is to *gasp* "do the right thing"...

Agreed but this adds legitemacy to us "kooky conspiracy theorists" who have quite frankly been right about the banking system and it's history of colonial enslavement.

[Zippyjuan]

1. Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.

This is increasing the reserve requirements- not getting rid of fractional reserve banking. Getting rid of fractional reserve banking would mean having no reserve requirements so banks could loan out as much money as they have if they wanted to.

[libertyjam]

Either bankers are afraid of being collectively burned at the stake in the near future, or the head of the BofE has gone potty and grown a conscience. If the latter, who wants bets on how long before a fatal car accident or plane crash is in this guy's future?

[libertyjam]

removed

[Seraphim]

This is increasing the reserve requirements- not getting rid of fractional reserve banking. Getting rid of fractional reserve banking would mean having no reserve requirements so banks could loan out as much money as they have if they wanted to.

Remove legal tender laws and watch how quickly FRB dissipate from legitimacy. If the free market entrusts certain FRB because they do a good job, so be it. It's the FORCED usage of FRB's and the GOVT protected oligopolies that anger me/us.

[Seraphim]

Either bankers are afraid of being collectively burned at the stake in the near future, or the head of the BofE has gone potty and grown a conscience. If the latter, who wants bets on how long before a fatal car accident or plane crash is in this guy's future?

That was one of the first thoughts that came to my mind.

[malkusm]

Guys, he didn't say he was in favor of eliminating fractional reserve banking....he only listed it among a list of possibilities. While it does give the idea some credibility and traction, I wouldn't expect him to set the national reserve rate at 100% any time soon.

[georgiaboy]

Cool.

Under today's rules, would it be possible for a bank to self-impose no fractional reserve banking on itself?

If so, how would it work, and why isn't there a single bank in existence today doing so? Or is there?

[the count]

if mervyn really starts seriously pursuing those ideas i would guess that he might have an unfortunate 'accident'....

[Seraphim]

Cool.

Under today's rules, would it be possible for a bank to self-impose no fractional reserve banking on itself?

If so, how would it work, and why isn't there a single bank in existence today doing so? Or is there?

Depends on the country.

Here in Canada, there is NO reserve requirement for banks. That's LEGALLY. What they impose on themselves I'm not sure. Outside of that banks are regulated more then in the USA.

[hugolp]

Cool.

Under today's rules, would it be possible for a bank to self-impose no fractional reserve banking on itself?

If so, how would it work, and why isn't there a single bank in existence today doing so? Or is there?

No way. The other banks would be earning several times more benefits during the boom of the bubble, and would end up sending the "responsable" bank out of the market.

[libertyjam]

This comment in the article may be the most astute.

[Bern]

Getting rid of fractional reserve banking would mean having no reserve requirements so banks could loan out as much money as they have if they wanted to.

I think you are confused. We have zero reserve requirements here in the States right now.

The only guarantee you have on bank deposits is a bankrupt FDIC/government (essentially taxpayer bailouts as needed).

[Zippyjuan]

Depends on the country.

Here in Canada, there is NO reserve requirement for banks. That's LEGALLY. What they impose on themselves I'm not sure. Outside of that banks are regulated more then in the USA.

Curious that some people cry out against fractional reserve banking on the basis that they can "multiply" money and say that getting rid of the reserve requirement would get rid of that- a non-fractional reserve bank. But that gives the contrary result- removing the reserve requirement means that if they want to they can loan out up to 100% instead of 90% of their deposits which would INCREASE the mulitplier effect. Increasing the reserve requirement REDUCES the multiplier.

I think you are confused. We have zero reserve requirements here in the States right now.

You are mistaken, There is still a ten percent reserve requirement on most banking institutions.

[Seraphim]

Curious that some people cry out against fractional reserve banking on the basis that they can "multiply" money and say that getting rid of the reserve requirement would get rid of that- a non-fractional reserve bank. But that gives the contrary result- removing the reserve requirement means that if they want to they can loan out up to 100% instead of 90% of their deposits which would INCREASE the mulitplier effect. Increasing the reserve requirement REDUCES the multiplier.



You are mistaken, There is still a ten percent reserve requirement on most banking institutions.

no reserve requirement= potential 0 reserves. Meaning they can theoretically multiply by infinite.