Thursday 6 November 2014

The risks of investigating the banks now

It is both exhilarating and disturbing to find that the great edifice of government is moving in the directions you have urged.  Not that I am in any way influential on these - the Treasury's inquiry into digital currencies and the new Competition and Markets Authority investigation into the banking market.

But it is still disturbing.  Why are they doing it now?  Will they actually make things worse?

It isn't clear to me, for example, that the Treasury has the authority it needs to regulate digital currencies, and I am always nervous when government departments start thinking about regulating areas which require innovation - they so often go about it in entirely the wrong way.

On the other hand, I would prefer UK banking regulators to have a go at setting out a framework for new kinds of money than any other European nation.  Heaven help innovation if the Banque de France or the Bundesbank start throwing their Napoleonic weight about.

The Bank of England has already written something open-minded about the whole field.  History demands that they take their responsibility to take charge of this on behalf of the continent.  Or so it seems to me.

But I am confused about the government's decision to call in the banking market.  I am not naive enough to believe that it had anything to do with my suggestion in this blog last month.

It is true that the banks require rescuing from themselves.  The domestic banking market is no longer viable with free banking, partly because of low interest rates.  None of them can afford to move first, but - if they collude among themselves to charge - they risk going to gaol.  An investigation of this kind is precisely what they need.

In which case, why are they complaining?

The other question is this.  The investigation is going to take 18 months, over the period of the next general election when the future of banking ought to be one of the main objects of debate.  It is absolutely vital that we don't allow the parties to use this process to avoid discussing it with voters.

I very much hope that the Lib Dems will campaign on their new policy of banking with boots on the ground - and will act on it, alone or with others, after the election.  Fingers crossed.

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