Historic Banking "Grandfather rights", Is History influencing current banking policy?

   The banking crisis and resulting economic crisis has left people wondering how the banks could have created such a mess that we are all now paying the consequences for. We have found that the regulations within the banking system (atleast as far as the U.K. is concerned) appear to be vague, very few in number, and un-enforcable by a regulatory authority. Many of these 'rules' are many decades old, but where up-dated regulations would seem very necessary, changes have not been made.  It would seem therefore that there may be evidence that our current bankers are taking advantage of decisions made by bankers from the past, in the name of profit. There is clearly room for improvement, but for reasons only known to themselves  necessary updates to the banking sysem have not taken place, even in the crisis aftermath!

-Under "Bankers Rights" from the Banking Act 1979 the following statement can be found;

"Bankers may use funds deposited as it thinks fit."

Yes, this really is quoted as in the '79 Banking Act. Although this sentence wouldn't even appear to be very good English, the possiblities which are left open to bankers by this clause are prettty worrying for all of us and would go some way to explaining why we have the current financial crisis.

A more suitable replacement clause to the one in question could go something like this;

"Bankers may use funds deposited in any way which benefits both the investor, the business to be invested in and the economy."

If bankers used this as the model to build the banking system around, we could be looking at a completely different finance system today. The reason for this is that a lot of business that banks are involved in would not fit into the criteria of the 'new' clause. Explaining in detail this business is one of the aims of Anti-Crisis Economics, details of which you can see elsewhere on the site.

   Going back to the 'Rights and Duties', also stated in the Banking Act 1979 is that Banks can give financial advice or investment management services and facilities for arranging the purchase and sale of securities. However, there is no detail on the actual advice that should be given to customers. Without specific details on the advice, it looks like the banks are given the right to advise customers to buy their own 'investment products'. There is a major problem here because one of the problems we believe has caused the banking crisis and other major problems with invested savings over recent decades is that the public do not really understand what is happening to their invested money. If they did they would probably invest it some other way or buy a safe to keep it in where it could dono one any harm. (Please read elsewhere in Anti-Crisis Economics on Private Equity, Hedge Funds, Stock Markets and Property Tycoons).

This next statement is also from the Banking Act 1979;

"The banker customer relationship has been largely left to implied contract, the terms of which have been developed by judicial decisions over the years (i.e. by case law). The term implied contract means there is no written agreement between the bank and its customer, and their relationship is simply based on what has happened between the bank and its customer in the past, and the decisions that the courts have made when the banks have been sued for failure to fulfil their implied obligations."

-This particular statement appears to protect the banks from almost anything. It would appear that the bank would be unlikely to ever go to court and you would only win if somebody had previously been successful in challenging a similar breach.
The Banking Act 1979 goes on to say the following;

"The banks responsibilities towards their customers have largely been dictated by case law, as have their rights, and it is therefore necssary to look at individual cases when considering these rights and duties."

-This statement suggests that case law may dictate what their rights and duties are but it doesn't specifically say it would be enforced by the past decisions, but will treat each case individually. In other words even if customers have one cases in the past, it doesn't necessarily mean an individual will win a similar case in the future.
   The point to notice about even the "implied" bankers rights and duties is what seems to be a lack of duty to invest favourably from an economic point of view. In fact, reading between the lines, the banks seem to have given themselves the right to invest customers money "as they see fit" even at the expense of the economy as long as it is profitable for the bank.

The Banking Act 1979, although thirty two years old would appear to be setting the standard for todays U.K. banks. However, to make things a whole lot worse, the U.K. banking system is the one that many of the countrys of the world have used as a standard to set there own banks by.
Just one final point;
'The Bank of England has statutory immunity against negligence claims.'