Monday, 25 July 2016
Five videos on banking.
The first two are light hearted but quality stuff all the same. Prof Anat Admati, who specialises in banking, makes an appearance. These five videos were brought to my attention by Jack Haze, who works for a bank in the US.
I couldn’t fault the first video (the pair are actually a two part series). The second half of the second one made claims which I thought were true, but were not actually substantiated in the video. But that’s a minor blemish.
The third video is high quality stuff - apart from the poor sound quality for the first minute or so. It’s a presentation done for the Swiss CFA Society, by Prof Dirk Niepelt (University of Bern). It examines the Swiss Vollgeld initiative, i.e. the idea being pushed in Switzerland (and indeed in many other countries) that commercial banks should not be allowed to print or create money: “full reserve banking” (FR) as it is normally called. Niepelt concludes that FR could work, but he claims it would have significant problems.
However, he ends by making an odd claim, as follows.
He says he doesn’t like the idea of FORCING those with bank accounts to make the stark choice that FR forces bank account holders to make. That’s the choice between putting money into, first, a totally safe but zero interest earning account, and second, an account where interest IS EARNED, but account holders have to bear the costs if things go wrong with the bank (or where the particular type of loan chosen by the account holder (e.g. mortgages) goes wrong.
Instead, so he says, central banks should offer totally safe accounts for those who want them (perhaps managed by commercial banks). That’s actually something the Bank of England is contemplating and which Positive Money backs. And indeed those accounts would be just the same as the safe accounts contemplated by advocates of FR.
As to those who want a decent rate of interest, so Niepelt says, they could have accounts like existing bank accounts (where money is loaned on to mortgagors, small businesses, etc), but those account holders would bear the cost if things go wrong.
Now hang on: a system where account holders bear the costs when things go wrong is exactly what the advocates of FR argue for!!!!! In short, I’m puzzled as to what the difference is between Niepelt’s system and FR.
The final two videos are also produced by the CFA, but I’ll deal with those in a day or two. Relevant links: