Home > Finance and money > Is modern banking fundamentally flawed?

Is modern banking fundamentally flawed?

The UK’s debt level has been growing and growing in recent years, reaching nearly seven times our annual GDP.

But this is a good sign, is it not? I mean, no-one would lend to a country and people that couldn’t pay it back, would they? So the fact that we are in so much debt, must mean that we’re a good investment. That we can and will pay it back by growing our economy. Right? Well…. maybe that’s the wrong way of looking at it…….

Attached is a recent submission to the Independent Commission on Banking that paints a rather worrying picture of our economy & finances.

ICB Submission – Nov 2010

Categories: Finance and money
  1. December 1, 2010 at 11:54 am

    I would like to know how much money is tied up by the Banks on a daily basis. Every time that a transaction is done in the normal way, the Banks hold the money for 3 to 5 days.

    It is my belief that this money allows the Clearing Bank to leave an equivalent amount for their Trading Operations.

    I have spoken to a tax Barrister about this and called it theft. He disagrees on a legal view, but agrees on a moral view.

    We are just concluding some deals that has used four Banks to produce the result. It is interesting to see that the Patriot Act checks by the foreign Banks has taken 3 days each time. Our home Bank HSBC in London cannot do the same, they are taking longer. Why? Is it just incpompetence? I think not.

  2. December 2, 2010 at 9:09 am


    That’s an interesting question. I’m fairly sure that there are figures on this amount available. In reality all money deposits in your account are not legally yours, but the banks. See link below:


    Hence, if a bank goes bust, depositors need to join the queue of creditors. Paul Mason’s recent post on Capital Structure exlains the pecking order quite nicely:
    Paul Mason – Zombie banks

    Essentially, the bank does own the money, and if they count it from the moment you deposit the money (even though your account hasn’t technically been credited yet), then well yes in the eyes of the (case!) law they do own it. However, in theory a legal challenge could be mounted as it is dealt with through case law not statute law.

    The bottom line is that many aspects of the modern world are not morally correct, even though they may be legally correct. The term for this being “legal but venal”, and used in the following context about the (lack of) UK banking regulation:

    Legal but venal banking regulation

    Good luck on your investigation and please keep us posted.


  3. December 6, 2010 at 1:06 pm

    Here is further articulation of the inner working of bank balance sheets from a fellow contributor to the ICB (John Tomlinson). His portrayal of the correct way to show a bank balance sheet is enlightening:


    “Bank depositors are generally unsecured creditors…..The term UNSECURED CREDITOR gives a very different impression of the position of depositors than most people understand. Most people believe they are putting their money into the bank for safekeeping.”

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