Banking Crisis - Treasury Contents

Memorandum from AKM Ismail


  The deposit taking system has to be refined given the advance of technology ie all individuals will have a single account with say HMRC or National Insurance which will receive all deposits such as salary directly from employer and all self-employed income for the self employed.

  All major payments to credit card, mortgage, council tax, utilities and telephone will be paid automatically from this account.

  Any excess can be transferred to banks who will market their deposit business to them. This will remove the need to guarantee bank deposits and reduce the contingent liability of the government.

  The Government will only be used to fund UK Treasuries using any surplus in the account. The idea is not for Government to enter banking business BUT on the contrary provide an efficient transparent system.


  Twenty years of banking experience: DBS Bank in Singapore and Citibank including Head of Restructuring at the peak of the Asian Financial Crisis. Latest job was Senior Corporate Finance Manager at Treasury Holdings, an Irish Property developer that owns the Battersea Power Station project. In addition to the experience of working for banks, investment companies and property companies, I have provided training and consultancy with emphasis on capital restructuring of companies.

Factual Information

  I would like the committee to look at how Singapore survived the Asia Financial crisis in particular its housing finance system under its Housing and Development Board which then provided bankruptcy remote housing based on compulsory savings through the Central Provident Fund.


  I would be pleased if the committee would look at abolishing the deposit guarantee system and replacing it with a simple account to be maintained with HMRC or National insurance.


  I will focus the written evidence on Para 1.8 of the Terms of Reference.

1.8  Possible improvements to the architecture of (international) financial regulation and maintenance of global financial stability

  The final score card of billions of public funds being pumped into banks is a statement of the dire situation we are in. The "tombstone": for these preferred share issues to the banks are in effect the tombstones of the current financial system.

  Going forward, the solution has to be capitalist as history has taught us that a central government run system for the common good does not work.

  Co-operative solutions have also failed in the long term as the underlying need to have a business model that generates profit is necessary to function over a long term.

  The solution has to be far-reaching and there shall be no sacred cows. Paramount importance shall be on the stability of the system rather than ensuring current jobs remain and the current financial system is safe-guarded.

  The recommendation to change the current deposit taking system so as to combine the efficiencies of the various players: (a) government, (b) regulators, (c) banks, (d) housing developers and (e) consumers.

  Banks have traditionally been doing both the deposit taking role and the lending role. Consumers have always been encouraged for a number of reasons to use the banking system to save their money which helped fund the basic needs of other consumers of which the housing needs were among the most significant in any ones life time. This process became complex with the advent of merchant/investment banking—which then took a life of its own and the ill effects we are now realizing. Now, the panacea for that seems to be the merger of the merchant/investment banking with the deposit taking institutions as has been seen in the various bank mergers in US—on the contrary, what needs to done is the split of the deposit taking roles and the lending roles.

  Given technological advances, there is no longer a need for High Street Banks to collect deposits and in the proposed solution is an out of the box solution that envisages a monetary system where the government does NOT enter into banking business but creates the platform for efficient deposit taking. This will remove the need for Government to guarantee deposits which could cost GBP 1 trillion in contingent liabilities and push the GBP even weaker and the whole population pays for the costs in terms of dearer imported products.

  The deposit taking can be done by legislating that all employment income shall be deposited in an account with HMRC, National Insurance etc. It is NOT a bank and thus not the same as depositing into nationalized Northern Rock etc. It is only a deposit taking institution and all regular payments will be made electronically from this account to (a) Mortgage Payment, (b) Council Tax, (c) Utilities,( d) Telephone/Internet, (e) Government Agencies, (f) Credit Cards and (g) Insurance payments—car, house, mortgage. It is an efficiency tool. Any surplus remaining can be transferred to High Street Banks which will provide the necessary savings products. Similarly, the banks will continue to provide the mortgage products from the savings they are able to obtain from savers not just consumers who have no choice but to open an account with them- as is currently the case now.

  The advantages of the system are the transparency provided by the system will permit banks to set limits and monitor the mortgage payments and the credit card payments—for example that it shall not exceed 50% of the salary. We will move from a country of debt to a country of savers over say the next 20 years. Banks will not be able to lend more money to pay the interest on bad loans—this has been one of the causes of the current weakness—not only are the assets weaker but the reward system encourages the process.

  Draconian over regulation will result in a drastic failure. So what is required for a silent achiever where each party does what it is best in? Government is expected to play an effective role in increasing productivity, data control (in which it does have a dismal record, but we have no choice), clear and concise regulation which can be easily implemented. Banks are expected to market their savings products and mortgage products and take risks that it is prepared to do according to the strength of its balance sheet.

  The changes proposed needs substantial moral conviction and strength and have to be discussed at length before implementing it across the nation in phases. Perhaps, for a start key workers and first time home owners can be brought into the system. It has been voluntary to succeed.

  There must strict rules on the surplus funds in the account and that shall be used only to purchase UK Treasuries, there shall be no exceptions. The effect of cheaper fund raising by the government should be ploughed back in terms of lower taxation.

  The timing of the financial crisis requires a more urgent solution and thus there is a need to work on the solution on a relatively urgent basis. It is thus proposed that such work starts immediately and must involve discussions with various government bodies to arrive at a practical solution which has been given full consideration of the various issues.

  Suggest that the committee recommend the following:

    (a) the deposit guarantee system be removed and replaced with the ability to open an account with HMRC/ National Insurance;

    (b) That the savings on a deposit guarantee system be passed on individuals who are prepared to migrate to this system;

    (c) Government shall also undertake to effectively reduce taxes as the tax net will become wider and efficient; and

    (d) all state subsidies relating to deferment of mortgage etc shall only apply if the citizens have migrated to the system of maintaining account and have maintained certain prudent borrowings ratios.

  Once we in Great Britain have successfully implemented it we can push for the implementation of this in other European states and developing economies.

January 2008

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