Thursday, 16 September 2010

Criticizing Fractional Reserve Banking Criticism

Samizdata back to its best: an absorbing thread on the merits of the Cobden Center's proposal, in the form of a Ten Minute Bill pushed by Douglass Carswell MP and Steve Baker MP, for reform of commercial banking practices in the UK. Understood in a narrow context, the problem lies not simply with public ignorance on the legal status of their deposits in the event of a bank run, a la Northern Rock in 2007, but with the government backing for deposit insurance. Laird owns the thread; choice quote:
"...there's nothing stopping banks today from essentially holding their customers' cash in safekeeping (for which a fee would be charged) rather than in a deposit account. It's not done because there's no market for it; the customers don't want that service. And who can blame them, when the government is guaranteeing the safety of deposits? The heavy hand of government is 99.999% of the problem. Eliminate that, and let the market work, and the problem would be solved. Even with fractional reserve banking."

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