The current financial crisis raises fundamental questions about the relationship between the commercial banks and the Bank of England. Before 1997 Britain had a system in which the Bank of England had an understood responsibility to act as lender of last resort to the banks and to help them if they had difficulty funding their assets. That system was a success, which was copied around the world. Unfortunately, it was undermined by Gordon Brown’s so-called ‘reforms’ at the start of his Chancellorship, leading to the worst financial crisis in this country since the South Sea Bubble.
The Bank of England should be privately owned – as it was for more than two and a half centuries prior to 1946. Its capital should be provided by the commercial banks and it should have regulatory power over these banks in addition to providing a lender of last resort facility. These supervisory and lender-of-last-resort functions are inseparable.
If we do not seize this opportunity to establish a sound and viable structure for British banking, we face the very real risk that we will lose a major proportion of our financial services industry to markets regulated by the European Central Bank or the Federal Reserve.
Download Central Banking in a Free Society by Tim Congdon.