Risks should be returned to those who take them, not unwilling taxpayers
27 April 2023
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Jamie Whyte writes in City AM
IEA Senior Research Fellow Jamie Whyte has written in City AM criticising proposals from the Governor of Bank of England Andrew Bailey to increase government guarantees on bank deposits.
Jamie wrote:
“In the UK, any bank deposit of £85,000 or less is guaranteed by the UK government. So if your bank goes under à la Silicon Valley Bank, the government will cover your loss. After a series of failures in the banking sector, Andrew Bailey is now looking to increase the £85,000 cap.
“To see the trouble with this, imagine you were trying to start a new bank. Your problem would not be finding borrowers. If you have the money to lend, you will find no shortage of people willing to borrow it. Your problem will be getting your hands on the money to lend them. In other words, your problem will be finding people willing to deposit their money at your bank. Why should they trust you not to blow it all and never repay them?
“Bailey should reverse his plan to increase his risk subsidy. He should do the morally and economically right thing, and return risks to those who choose to take them.”
Read Jamie’s full piece here.
Jamie wrote:
“In the UK, any bank deposit of £85,000 or less is guaranteed by the UK government. So if your bank goes under à la Silicon Valley Bank, the government will cover your loss. After a series of failures in the banking sector, Andrew Bailey is now looking to increase the £85,000 cap.
“To see the trouble with this, imagine you were trying to start a new bank. Your problem would not be finding borrowers. If you have the money to lend, you will find no shortage of people willing to borrow it. Your problem will be getting your hands on the money to lend them. In other words, your problem will be finding people willing to deposit their money at your bank. Why should they trust you not to blow it all and never repay them?
“Bailey should reverse his plan to increase his risk subsidy. He should do the morally and economically right thing, and return risks to those who choose to take them.”
Read Jamie’s full piece here.
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