4 replies on “IMF SDN: A Banking Union for the Euro Area”
I understand why the idea of a banking union is gaining some momentum but I don’t see how the current system of money creation/destruction can be stable.
We’re told a union ”would narrow gaps in the design of the monetary union, enhance confidence, and strengthen the basis for financial stability, sound credit”
First, bearing in mind that money comes from bank loans, is created with an even higher debt and ‘deleted’ again as the debts are settled how can this system possibly provide the basis for financial stability?
Second, the idea of ‘sound credit’ seems like it might provide more stability. However, banks can only create the principal of each loan and they have to expect the principal plus interest back. As a result what’s in circulation is the principal, or partial principal or every recent loan. What’s owed back is the principal plus interest. It’s inevitable that people will default on this system and this is the case even is banks created credit only for those with the highest credit rating. Even ‘sound credit’ can’t provide stability to this system.
The word ‘patient’ is mentioned a lot, as in, ‘As a patient, deep-pocket investor, the ESM etc….’
If our government were to apply this banking union method to the resolution now of the 2008-12 banking crisis phase in Ireland, ‘patience’ would be to the fore. There would be no excessively rapid sell-off of government shares in
the ‘viable’ banks, rather a patient wait until shares were at the ‘net gain’ point, where gains on shares held in the viable banks would offset, or substantially offset, losses in AngloNationwide.
4 replies on “IMF SDN: A Banking Union for the Euro Area”
I understand why the idea of a banking union is gaining some momentum but I don’t see how the current system of money creation/destruction can be stable.
We’re told a union ”would narrow gaps in the design of the monetary union, enhance confidence, and strengthen the basis for financial stability, sound credit”
First, bearing in mind that money comes from bank loans, is created with an even higher debt and ‘deleted’ again as the debts are settled how can this system possibly provide the basis for financial stability?
Second, the idea of ‘sound credit’ seems like it might provide more stability. However, banks can only create the principal of each loan and they have to expect the principal plus interest back. As a result what’s in circulation is the principal, or partial principal or every recent loan. What’s owed back is the principal plus interest. It’s inevitable that people will default on this system and this is the case even is banks created credit only for those with the highest credit rating. Even ‘sound credit’ can’t provide stability to this system.
@ All
FYI
http://ftalphaville.ft.com/2013/02/13/1385692/exorcising-eurozone-ela-as-we-know-it/
The word ‘patient’ is mentioned a lot, as in, ‘As a patient, deep-pocket investor, the ESM etc….’
If our government were to apply this banking union method to the resolution now of the 2008-12 banking crisis phase in Ireland, ‘patience’ would be to the fore. There would be no excessively rapid sell-off of government shares in
the ‘viable’ banks, rather a patient wait until shares were at the ‘net gain’ point, where gains on shares held in the viable banks would offset, or substantially offset, losses in AngloNationwide.
@ All
FYI
http://uk.reuters.com/article/2013/02/14/uk-eu-banks-idUKBRE91D16Z20130214