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Earlier in the week, David Cameron signalled that he believed that banking regulation should be returned to the Bank of England. However, there is a danger in thinking piecemeal about this problem. As is proposed by Tim Congdon, in Central Banking in a Free Society, it is vital that the Bank of England is privatised, has its capital significantly increased to around £15billion, and is allowed to use freely its lender of last resort function to support banks that are illiquid but solvent.

The emasculation of the Bank of England by Gordon Brown in 1997 is substantially responsible for the current mess. A system of maintaining banking stability that had been copied all round the world was destroyed and the Bank of England turned into a monetary policy research institute. When Northern Rock hit problems, the Bank did not know how to act. It had lost its day-to-day experience of the banking sector and there was uncertainty as to the roles of the FSA, the Bank of England and the Treasury. Instead of the Bank of England using its lender of last resort function generously and quickly, Northern Rock collapsed and confidence evaporated…

Read the rest of the article here.

Philip Booth 154x154

Academic and Research Director, IEA

Philip Booth is Academic and Research Director at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary's University, Twickenham. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. Previously, Philip Booth worked for the Bank of England as an advisor on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs and on the editorial boards of various other academic journals. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

4 thoughts on “The case for privatising the Bank of England”

  1. Posted 26/03/2009 at 14:49 | Permalink

    Privatising it is a cop-out. I ran a Fun Online Poll (click my name) and 43% agreed the MPC should just be disbanded. The ‘lender of last resort’ theory is a cop-out as well; there ought to be a statutory debt-for-equity swap procedure if banks get in a mess, problem solved.

  2. Posted 26/03/2009 at 14:49 | Permalink

    Privatising it is a cop-out. I ran a Fun Online Poll (click my name) and 43% agreed the MPC should just be disbanded. The ‘lender of last resort’ theory is a cop-out as well; there ought to be a statutory debt-for-equity swap procedure if banks get in a mess, problem solved.

  3. Posted 26/03/2009 at 15:35 | Permalink

    A debt for equity swap sounds like a reasonable way of dealing with the orderly winding up (or recapitalisation) of an insolvent bank. The lender of last resort function is there for a different reason – it is to provide liquidity to an illiquid bank.

  4. Posted 26/03/2009 at 15:35 | Permalink

    A debt for equity swap sounds like a reasonable way of dealing with the orderly winding up (or recapitalisation) of an insolvent bank. The lender of last resort function is there for a different reason – it is to provide liquidity to an illiquid bank.

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