It is a great pleasure to see a respected and mainstream economist jump into the debate about our banking system. Although Dr Lilico does not go far enough as far as I am concerned, he has made a great and courageous leap in the right direction when proposing the straightening-out of the law in relation to the regular deposit contract. In short, Dr Lilico would like to see 100% safe storage deposits for people who want to store their money and still own it, and investment deposits which would not be insured and would have the same characteristics as the current fractional reserve demand deposit.
A 100% cash reserved safe deposit does not need any government gilts or insurance behind it as Dr Lilico suggests, just the cash itself, but this is a minor point. I disagree that factional reserve accounts should exist — they rely on a legal privilege to not keep creditors whole, and they mislead depositors by calling money “yours” when it is really theirs — but this report is a strong move in the right direction.
Here is a collection of news articles that this policy proposal has attracted to date. I have added my comments to some of them:
- Banks should give customers ‘bomb-proof’ accounts, says Policy Exchange think-tank
- An intriguing plan to reform banking
- The scary truth about your banks and your savings
- David Cameron can’t afford to be caught napping in Brussels