23 September 2010

22 September 2010

BBC breaks the depositor protection news I posted last week

Last week, during a piece I posted about Carswell and Baker's banking reform bill, I mentioned in passing that, due to changes in EU legislation, from January 2011, all deposits with banks across Europe will be guaranteed up to at least 100,000 Euros.  Eight days later, the BBC has published the same facts as if they are breaking news.

As a example of the seeming inability of politicians to think in any kind of connected fashion, it's highly instructive.  On one hand, we have EU politicians pushing out increased banking regulation and capital requirements in an attempt to increase prudence in the banking sector and reduce the likelihood of future losses being socialised, on the other hand, we have EU politicians pushing out increased depositor guarantees, which will reduce prudence in investment decisions and increase the likelihood of future losses being socialised.

The end result is two directives which grab headlines, increase bureaucracy, pull in opposite directions and ultimately, may well end up just cancelling each other out.

14 September 2010

Carswell and Baker's Bank Bill - Ultimately Pointless

There's been a fair amount of online discussion about Douglas Carswell and Steve Baker's bank reform bill. In simple terms, their proposal is to make banks specify whether an account is a straight deposit account, where the bank effectively holds the deposit in a vault, or an interest paying account, where the bank lends on the money to borrowers in order to generate that interest. I agree with the general principle, as I've said previously, but I think this particular bill, in the unlikely event that it were to become law, would be pointless.

The person putting money into a bank account would be faced with two options:
  1. Put the money into an account where the bank would act like a safety deposit box and would almost certainly charge you for the privilege.
  2. Put the money into an account where the bank lends the money on, with the risk that the money isn't repaid or the bank doesn't have the money available at the time you want to withdraw it, but with the benefit of receiving interest.
It would be a reasonable choice to present the depositor with, but for one thing; the government currently guarantees deposits up to £50,000.  If the depositor knows that any money put in the second type of account will be guaranteed up to that amount, then there is little point in taking on the extra cost of the first type of account, if the deposit is less than £50,000.  On that basis, the law would only serve any useful purpose if it also removed those guarantees and the UK doesn't have the power to unilaterally do that.  EU directives require that credit institutions in member states be members of deposit guarantee schemes, with the cover being a minimum of 50,000 Euros, rising to 100,000 by the end of 2010.

So in short, while the principles behind Carswell and Baker's proposal may be good, their execution of it is pointless.

13 September 2010

A Reversal of a Common LVT Example

One of the most common examples presented in support of LVT is the way that investment in public transport infrastructure can increase land values.

In a bit of a twist, The Wall Street Journal has an example of the effect working in reverse.  In New York, the Metropolitan Transportation Authority has cut some bus and subway routes, with the predictable result being a drop in property prices along affected routes.

Hat-tip to Stephen Smith at the Market Urbanism blog.