Friday, 11 June 2010

You do not own your bank deposit

Edmund Conway gets ever closer to enlightenment:

The chances are you think that when you deposit your money in your bank account, it is still legally yours. But, and I don’t want to scare you unduly, that is most certainly not the case. In fact, it hasn’t been (in the UK at least) since case law established in 1811 (Carr vs Carr, in case you were wondering) that the money you put in your bank account no longer legally belongs to you – instead, you are lending it to the bank, which in turn is paying interest on the loan.

And yet only one in ten people surveyed recently in an ICM poll commissioned by the Cobden Centre realised this (74pc believed they remained legal owners of money in their current accounts; 16pc thought they shared ownership with the bank).

He goes on to note that
the question of how to restore stability and functionality to the banking system has been conveniently forgotten. This is a real worry. The point is that not merely are we wasting an opportunity to overhaul a mutated banking system, we also risk, by not concentrating hard enough on our reforms, imposing changes that end up causing far greater damage.

Take deposit insurance. Most academics now agree that introducing such insurance can undermine the foundations of banking, by encouraging banks to take greater risks (knowing their money is protected) and ultimately socialising the banking system (since they have to be bailed out when there is a crisis). So why do we have it in this country? The answer is simple – and disturbing. It was only introduced in 1979 as a result of a European directive.
Deposit insurance is a Bad Thing, for exactly the reason that Conway notes, but I had no idea that it was introduced to the UK through a European directive. This suggests that departure from the EU may be essential to proper reform of our banking system.

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