Preview: The subtitle should read: "Make Banks Behave More Like Insurance Companies: Fiat Currencies Are Unsustainable"
Mervyn King - the governor of the Bank of England - has proposed abolishing fractional reserve banking. King, has tonight made a big intervention into the debate on banking reform.
"Radical Proposals" listed but not endorsed by King include...
1- Forcing the riskiest banks to hold capital "several times the magnitude" of requirements at present.
2- The Volcker rule-style enforced breakup of banks into speculative and non-speculative arms.
3- The "Kotlikoff proposal", which forces banks to match each pool of risks with a requisite amount of capital, preventing losses in one spilling over into another.
4- Stunningly, Mervyn King imagines the "abolition of fractional reserve banking"
King said "Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets." -Washington's Blog
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