The principles on which banking should be based.

Principle No. 1: Access to a 100% safe bank account is a basic human right.

Principle No. 2: If an account is to be 100% safe, the relevant money cannot be invested or loaned on by the commercial bank concerned: the latter involves risk, and risk is not compatible with 100% safety. Or put another way, if the money in an allegedly 100% safe account IS LOANED ON or invested, then someone somewhere carries the risk and it’s the taxpayer: the depositor and the relevant bank profit at the expense of the taxpayer.

Principle No. 3: With the exception of the above semi-commercial 100% safe accounts, it is not the taxpayer’s job to subsidise commerce: that is commerce in general or the commercial activities of banks. Thus where money deposited in a bank IS LOANED ON or invested, the taxpayer is under no obligation to come to the rescue if it all goes wrong. In the same way, the taxpayer does not rescue those who act in a commercial manner by investing in the stock exchange.

Indeed it is a blatant absurdity that when a household invests in corporate bonds and the corporation goes bust, taxpayers do not reimburse the household, yet when the same household deposits money in a bank, which in turn lends to the same corporation, the household IS REIMBURSED if the bank also goes bust as a result.

Principle No 4: Since private sector banks are demonstrably incapable of supplying a country with a stable money supply without the taxpayer periodically coming to their rescue (during financial crashes, credit crunches, etc), a nation’s money supply is best provided only by its government and central bank. That is, full reserve is preferable to fractional reserve.

(A good 95% of money in circulation is currently provided by private banks rather than central banks.)

Principle No 5: As pointed out in a Financial Times front page lead story, commercial banks will use any old fraudulent or deceitful argument to prevent the above sort of restrictions on their activities. A common argument they cite is that restrictions on commercial bank activities impede economic growth, or will be deflationary.

The simple answer to that is that any government in combination with its central bank can provide stimulus whenever needed, and in whatever amount is needed to counteract any deflationary effect that comes from restricting commercial bank activities.


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