Ex-BIS GM on limitations of narrow banking

Sir Andrew Crockett, the former general manager of the Bank for International Settlements (BIS), on Sunday said narrow banking alone would not address disruptions in the real economy.

At a Per Jacobsson memorial lecture at the BIS Annual General Meeting in Basel, Sir Andrew said while some advocates of the narrow banking school believed a payments mechanism that is fully protected insulates payments from other developments in the financial system, it does not by itself guarantee either the stability or the efficiency of the credit supply mechanism.

"Typically, it is interruptions in credit supply that transmit financial stress to the real economy. And it is inefficiencies in credit allocation that hold economies back from achieving optimal growth. Bubbles and their subsequent bursting are the most obvious manifestation of this," he said.

Click here to read the speech.