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31 May 2012 | PR 12/99
Loughborough professor calls for ‘open-source banking’
Professor Alistair Milne
The future of the UK economy depends on the switch to ‘open-source banking’, according to Alistair Milne, Professor of Financial Economics at Loughborough University.
Speaking at today’s launch of the Loughborough University Centre for Post-Crisis Finance, which is part of the School of Business and Economics, Professor Milne advocated radical change in the structure and process of banking, defining ‘open-source banking’ as having open access to banking information and systems.
He also noted that policing the ‘ring-fence’ in the form proposed by the Independent Commission on Banking (the Vicker’s Commission) is costly and that these costs threaten to reduce the supply of credit to smaller businesses and first-time mortgage borrowers. These costs, he added, can be avoided by a different principle of separation, not ‘retail’ versus ‘wholesale’, but rather a split of monetary and credit functions to prevent additional financial crises.
He concluded that he believes the future to be ‘open-source banking’, which will support proper competition in retail banking and hence allow borrowers adequate access to credit.
“There is a great opportunity for fundamental reform,” said Professor Milne. “This requires combining ring-fencing with ‘open-source banking’ to ensure that ring-fencing does not lead to an undesirably large contraction in the supply of credit. But I fear that opportunity may be missed.”
With open-source banking, banks no longer monopolise the provision of credit to their customers, but are obliged, subject to agreement from customers, to allow any outside firm, that is considering providing credit, access to that customer’s payment history, as well as the ability to link this information to the necessary accounting and legal information on which the firm’s decision will be founded.
‘Open-source banking’, Professor Milne stressed, would allow proper competition in the provision of monetary safekeeping and payment functions, offering competitive access to the payments architecture.
Arguing against intrusive government regulation in banking, Professor Milne instead believes that the promotion of effective competition in the supply of both credit and payment functions will go a long way towards resolving the UK’s current economic problems.
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About Professor Milne
Professor Milne is Professor of Financial Economics and Director of the Centre for Post-Crisis Finance at Loughborough University School of Business and Economics. He regularly provides expert opinion to the world’s financial media and also advises the Government – most recently he served as one of two special advisors on the Joint Parliamentary Committee, providing pre-legislative scrutiny of the Draft Financial Services Bill.
About Loughborough University
Loughborough is one of the country’s leading universities, with an international reputation for research that matters, excellence in teaching, strong links with industry, and unrivalled achievement in sport and its underpinning academic disciplines.
It was awarded the coveted Sunday Times University of the Year 2008-09 title, and is consistently ranked in the top twenty of UK universities in national newspaper league tables. In the 2011 National Student Survey, Loughborough was voted one of the top universities in the UK, and has topped the Times Higher Education league for the UK’s Best Student Experience every year since the poll's inception in 2006. In recognition of its contribution to the sector, the University has been awarded six Queen's Anniversary Prizes.
Loughborough is also the UK’s premier university for sport. It has perhaps the best integrated sports development environment in the world and is home to some of the country’s leading coaches, sports scientists and support staff. It also has the country’s largest concentration of world-class training facilities across a wide range of sports.
It is a member of the 1994 Group of 19 leading research-intensive universities. The Group was established in 1994 to promote excellence in university research and teaching. Each member undertakes diverse and high-quality research, while ensuring excellent levels of teaching and student experience.