Narrow banking: reforms for the future

November 3, 2009

British economist and author John Kay argues in “Narrow Banking: the reform of banking legislation” that the financial services industry should be restructured to ensure that regulation serves the interests of the public.

“A competitive marketplace is one in which well run businesses earn profits through domestic and international competition, and badly run businesses go to the wall,” he says.

“That is the process by which the market system promotes innovation and economic progress, and suppression of that process damages innovation and economic progress.”

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In some ways, it seems we’ve already been subject to narrow banking: narrow-minded banking, at any rate. The banks have had the best of both worlds. While times were good, they proclaimed that government intervention in the markets was tantamount to communism, but as soon as times turned tough, government intervention was greedily welcomed. Consumers still face outrageous fees, service and overdraft charges. We are constantly advised that Chancellor Darling and PM Brown will rein in the banks, but what’s stopping them from doing that now?

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