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The Christian Faith and the Financial Crisis
Part Two: The Financial Crisis (6)


Griffiths's criticism of the British banking system is in principle rather similar. It comes in the form of a pamphlet - Competition in Banking - published by the IEA in 1970, (6) at a moment when Edward Heath's government had just come in on a programme which rather resembled the policy associated ten years later with Margaret Thatcher. As the Editor's introduction says: 'Mr Griffiths' study is a timely contribution to academic and public discussion at a time when a new government, notably in the statements of the Prime Minister, is for the first time in decades, sounding a new note of economic philosophy in emphasising the importance of competition in all sectors of the economy ...' (p.4) The IEA was soon to be disappointed in Edward Heath as he found himself having to adapt to the then apparently overwhelming force of trade union power.

(6) Brian Griffiths: Competition in Banking, Hobart Paper 51, London, Institute of Economic Affairs, 1970.

Competition in Banking makes interesting reading nowadays - a glimpse into a world that is now long gone. It was a world in which the interest rates charged by the banks for their various services were pegged to the Bank Rate, the interest charged by the Bank of England, so that, since the Bank of England was controlled by the government, the government could dictate the whole range of interest rates charged by the major clearing banks. In addition Griffiths describes various devices by which the government could steer credit into socially desirable ends. 'In December 1964' he tells us for example:

'the Governor of the Bank of England issued a letter to all financial institutions establishing priorities for lending. Exports, productive investments in manufacturing and agriculture, house purchase and building were to be given priority and lending to finance consumer expenditure, property development (other than house-building), imports of manufactured goods for home consumption and stock building were discouraged.' (p.27)

Credit was also steered by various means towards the public sector, with, on occasion, limits put on the amount that could be lent to the private sector:

'if bank deposits remain constant and the quantity of credit lent to the private sector decreases, the banks are forced to hold either cash or government debt. Even though the yield on government debt is below that on advances [to the private sector - PB], it is higher than on cash. The placing of government debt and and the state of the gilt-edged market seem to have been the major preoccupations of the Bank's policy in this period. The Bank of England Quarterly Bulletin, in a comment on monetary policy, said that: "Neither interest rate policy nor credit policy is the long term consideration in debt management: this is rather to ensure so far as possible that suitable finance for the Exchequer is available."' [The quotation is from 'Official transactions in the gilt-edged market', Bank of England Quarterly Bulletin, June 1966 - PB]

Since the banks could not compete with each other by offering attractive interest rates on their different profit generating services, they had to compete by other attractions that were not necessarily in themselves profit-generating. These might include such things as ingenious advertising gimmicks, or impressive marble cladding; but he also mentions multiplying the number of branches, which presumably meant placing branches in places that would not other wise be served. It all invoked, in me at least, a certain feeling of nostalgia.