Banking, Credit, & Mortgages
The UK operates on fractional reserve banking, where banks do not keep all your money and have the power to create credit through loans. This risks bank crashes when trust is lost in the system and provides constraints that make housing reforms more difficult. The following policies are to be implemented:
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Implement full reserve banking through the Bank of England crediting reserves to match deposits and putting the new windfall of excess assets held by banks under review. This is a temporary measure to ensure deposits are 100% safe during implementation.
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All bank deposits are backed by reserves and therefore retrievable in the event of the commercial failure of a bank.
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Expand central bank lending into a full central wholesale funding system, where the Bank of England creates credit to lend to private banks at an interest rate, to then lend to the consumer at a margin. This replaces private banks creating credit through loans.
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Set up regional and local co-operative banks to co-ordinate investment, owned by local communities and operated for their benefit to provide financing for worker-run businesses.
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Mortgages to be restricted to 3x single income to prevent credit inflation in housing.
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Mortgages to be offered at 0% deposit subject to one year of full-time income and/or rental history.
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Mortgage lending at 0% interest, with private banks earning money through a £25 per month servicing fee and a one-off 1% origination product fee.
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Automatic 0% refinancing for all primary residence mortgage holders or a 1% product fee to refinance instantly.
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No Early Repayment Charge on 0% interest mortgages.
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Prioritise first time buyers for mortgages.
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Productive investment to be prioritised.
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Speculative lending and consumer credit to be banned. Personal and business borrowing to smooth income cycles may be allowed.
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Nationalisation of banks whose profits collapse under the new business model, with compensation at the fallen market cap.