The intellectual dishonesty of Vickers.

In arguing against full reserve banking, Vickers said (para 3.20):

“Since lending to the private sector necessarily involves risk, such banks would not be able to use the funding from deposits to make loans to individuals and small and medium size enterprises. Should ring-fenced banks be allowed to make such loans? If ring-fenced banks were not able to perform their core economic function of intermediating between deposits and loans, the economic costs would be very high.”

“Very high”? Where do they get that from? Well here’s a clue. On the subject of “very high”, Vickers’s so called “Interim Report” said something very similar to their “Final Report”. The interim report actually said “Like narrow banking, a complete move from fractional to full reserve banking would drastically curtail the lending capacity of the UK banking system, reducing the amount of credit available to households and businesses and destroying intermediation synergies.”

But according to Ben Dyson’s book “Modernising Money”, “In response to requests, the commission would not clarify what they meant by drastic”.

In short, and as far as those phrases “very high” and “drastic” go, it looks as though Vickers is making it up as it goes along.

But never mind. It’s not too difficult to come up with some more intelligent ideas here than Vickers managed as regards the effect of full reserve banking on “…the amount of credit available to households and businesses”.

Under full reserve, those funding businesses and mortgages have to bear the full cost of what they do, as distinct from the existing system under which taxpayers bear the ultimate risk involved in that funding or lending. And that’s the main difference between the existing system and full reserve.

Thus full reserve DOES INVOLVE increased costs for borrowers, BUT ONLY TO THE EXTENT of removing the above taxpayer funded subsidy. Moreover, Vickers’s two reports (interim and final) just like Dodd-Frank clearly state that subsidies are undesirable.

So Vickers advocates the removal of bank subsidies at the same time as objecting to a system which actually removes those subsidies!!! Dear oh dear. And to add insult to injury, Vickers failed to remove bank subsidies for reasons I spelled out in the post just before this one.

Now if Vickers is not well and truly in check-mate there, then obviously I don’t understand the meaning of the phrase “check-mate”.