Wednesday, September 14, 2011

Tories should practise what they preach

Surely a lightly regulated industry such as banking should be able to respond to changes in the the market?

Where is that messianic belief in free markets when you need it? It's no longer quite so much in evidence in the Conservative party, for example. The Tories admit that they were "wrong", while in opposition, to insist that banks needed less regulation. But while the party now supports banking regulation in principle, the eight years of "grace" it has given the banks to ringfence their retail and wholesale operations, on top of the three years the banks have already had to start doing so, suggests that the party retains quite a good deal of reluctance to put any money in the vicinity of their mouths.

Perhaps it is time for the Conservatives to start practising what they used to preach? The idea is that lightly regulated companies can respond quickly to market conditions. So why not manipulate market conditions in order to offer the banks an incentive to do what is necessary to protect the taxpayer from their continuing irresponsibility? Banks that ringfence their operations can rest assured that in times of crisis, the government will guarantee the accounts of their savers. Banks that don't ringfence should operate under no such guarantees ? with customers awarded a statutory right to take their money out of banks that prefer not to choose that option (within a certain period of time much shorter than eight years), whatever the conditions on their account.

And who should be responsible for letting savers know that at a particular bank their money is not guaranteed, in the likely event of another banking crisis? The banks, of course. Any customer whose money is not guaranteed, and whose bank has not given them reasonable warning that this is the case, should be entitled to take legal proceedings against the bank in question. That way, they will feel more inclined to act, because their precious market will really be calling the shots, for a change. They could adapt to this adjustment in the nature of their market with tremendous speed. Because that's what lightly regulated industries, such as banking, are so very good at, isn't it?


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Source: http://www.guardian.co.uk/theguardian/2011/sep/14/tory-policy-banking

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