There was a comment posted on this blog overnight, which might reasonably be called a tirade about the temerity of my suggestion that we might need to reform banking in the UK, included in my Alternative Budget.
Posted by someone who had only appeared here once before, called Donald Syme, if I summarise the complaint, it is as follows:
Your proposals would, in effect, dismantle the existing UK banking model. By capping savings interest at or below inflation, freezing ISAs, and forcing pensions to invest only in the UK, you would remove the main competitive functions of private banks. Savers would see deposits lose value and move money abroad, into crypto, or into non-bank assets — weakening domestic banks further.
Meanwhile, a state-backed National Network Bank and government-directed investment funds would take over core lending and savings allocation. Private banks would remain in name only, reduced to basic payment utilities while the state controls credit flows. This amounts to de-facto nationalisation of finance, likely breaching international rules and making any return to the EU impossible. The implication: you want the end of private finance altogether.
This was my response:
You accuse me of wanting to “destroy the banking sector” because I suggest that banks should not be allowed to extract unearned gains from people's savings, and that those savings should instead fund productive investment in the UK.
Let me be very clear: what I want to end is the part of banking that extracts wealth from society while giving little back.
First, consider the reality of UK banking:
• Banks do not use our deposits to fund lending: they create new money whenever they make loans.
• Most savings earn “returns” only because someone else has to pay them – often through speculation on second-hand property or shares.
• The banking sector has not delivered investment in the UK economy for decades. Productive lending has collapsed.So when I say that interest on savings should broadly match inflation, that simply recognises the truth: savings are already not funding growth. A fair return that maintains purchasing power is enough. Extra reward for doing nothing is not.
Second, redirecting savings – from speculation into socially useful investment – strengthens the economy rather than undermining it. Our pensions and ISAs overwhelmingly fund property bubbles or assets abroad. That is a colossal waste.
Third, the idea that this is “nationalisation in disguise” ignores where we already are. Without government guarantees – on deposits, liquidity, and the payments system – the private banking sector would collapse within 24 hours. It is not a free market. It is a public utility currently run to maximise private gain.
There is also the not insignificant issue of the massive subsidy provided by the state to private banking via tax reliefs to make its otherwise inadequate products attractive to the public. No other UK business sector enjoys such a level of subsidy whilst offering such inadequate products and services in exchange.
All I propose is that:
• Banks focus on payments and essential credit provision
• The state supports housing finance people actually need – including secure lifetime mortgages
• Long-term savings fund the future of this country, not speculation in someone else'sIf that means banks become boring, stable utilities that serve society rather than exploit it, then good. The alternative is what we have now: a rentier-dominated finance sector that drains the life out of the real economy.
I am not trying to destroy banking. I am trying to save it – from itself.
I could have added three further thoughts, but did not.
First, if my suggestions contradict international banking regulations, it is the regulations that are wrong, and not my proposals. Regulation that preserves privilege and failed business sectors needs reform, not preservation.
Second, if my suggestions would cause friction with the EU, so be it. We are not going back any time soon. EFTA is the closest we will get, and by taking back control, we should, in any case, be showing the EU the way.
Third, if I upset bankers by saying this, so what? They have, for decades, made it their supposed job to undermine the UK state and its democracy by seeking to hold it to ransom with their claims that they might withhold funding unless their interests and not those of the people of this country are served. If all they can claim in defence of their privilege is that state regulation should protect them from attack, they really do want the argument for their rights to be made both ways: they both hate the state, and all it stands for and simultaneously want to use it to maintain their privileges. The time for that hypocrisy is over.
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Agree. As a millionaire once said to me “Mike, never educate a c…t” – good advice wrt Mr S(l)yme. That said sometimes daft questions allow one to clarify thoughts/put forward proposals as was the case here.
As for “contradict international banking regulations”…….take back control, Britain 1st, banksters and their interests 2nd.
“banks become boring, stable utilities that serve society” all for it – cut em down to size.
In my experience, the majority of people working in FS have a deep understanding of the rules they’ve invented (or lobbied the government to invent) which makes them appear as experts, but almost no understanding of the monetary system in which those rules operate or the planetary boundaries which are the ultimate constraint.
I don’t blame them…they’re paid to sustain the status quo and not question it’s impact…so I see our challenge in the coming years is to urgently connect the FS industry (to the extent it will exist in future) with the real world and then offer them a transition to something compatible with society’s and the planets needs.
I had a discussion with the Chief Economist at on of the big four accounting firms in the summer and tried to ask about money creation and MMT. I was shut down and told not to worry about it. In my experience people in finance are focused on doing their job (for Economists making predictions) and aren’t interested in the mechanics. They wouldn’t know the difference between base and broad money for instance.
Almost certainly true.
The argument that resonates with me, is where you point out how banks (along with large corporations, and High Net Worth individuals at the top of many organisations) in receipt of tax exemptions, tax reliefs, tax thresholds, investment incentives, rebates, state protections, state protected monopolies like banking licence conditions, and state-backed guarantees like the FSCS, are getting wealthier by the minute, their very survival guaranteed by the state they claim to despise, at great expense to that impoverished “public purse” that apparently is so empty it can’t do anything to help the rest of us eat, get educated or stay warm or healthy.
I can’t make up my mind whether they are so much in their bubble of entitlement that they don’t realise this, or whether they are so much in their bubble of entitlement that they DO know, and expect us all just to carry on letting them extract wealth from us while tugging our forelocks in gratitude for whatever crumbs we can gather up from under their table.
I suspect its a bit of both, but it’s going to change.
You did well on Vine.
Yet again, the truth about money is trickling through onto MSM.
Have the rest you need.
Three podcsts to do, an article to wrote and three videos to make, and some issues ignored in the run up to the Budget. That’s my rest.
But thanks!
I don’t think it is quite right to say banks don’t use our deposits to fund lending. I agree it is not a case of “you deposit £1, so I can lend £1” and that there is a money creation element to lending but capital rules do mean there is a correlation between deposits and lending. What the correlation is will depend on the risk appetite of the bank but I have worked for banks who constrain what they will lend quite heavily based on the desposit book. That said, many banks have excess liquidity at the moment and are shovelling the excess into bond markets, so I am very much in agreement the sector is doing an awful job at supporting the productive economy (and I would also agree that poor international regulation is a reason for this).
They are required by regulation to constrain their lending based on the deposit book.
But the unsavoury reason for that is that the deposit book is capital for banks: money they can lose.
So, depositors have to rely on government guarantees.
Yes. This is how i understand the current Basel 3 regulations that were created to prevent another crisis like 2008. Parts of the banking industry want these gone. Also not all the regulation has come into being. It is an ongoing process. So all this talk about not aligning with international standards is distraction. There is no international standard as it is. We have bits and pieces of a 15 year project.
Banks and financial institutions have been telling governments what to do for decades.
It’s time the shoe went onto the other foot.
So the banks don’t want competition from a national savings bank ? Whatever happened to a free market ?
We, the people, want a bank that we can trust. That is, borrow from, save with, get mortgages, keep pensions, etc. with which will also safeguard our money.
The banks used to be trusted until they started use our money to effectively gamble on the markets. They cannot be trusted now.
Hence the need for a national bank to provide financial security and stability for the people of this country
Note this doesn’t stop people using the existing banks if they are willing to take the market risk, but at the moment we are all being forced to take the market risk as there is no alternative to put our money