Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

656 Money, Bank Credit, and Economic CyclesThe above accounts for the great difficulty central bankersface in eliminating economic crises, despite their effort anddedication. It also explains the tight control the central bankmaintains over private banking, through administrative legislationand direct coercion. 83Moreoever, like Gosplan, the most important economicplanningagency of the now extinct Soviet Union, the centralbank is obliged to make an unceasing effort to collect anextremely vast quantity of statistical information on the bankingbusiness, the different components of the money supply,and the demand for money. This statistical information doesnot include the qualitative data the central bank would needto harmlessly intervene in banking affairs. For such informationis not only extraordinarily profuse; but what is moreimportant, it is also subjective, dynamic, constantly changing,to forestall or counteract developments in the realm of credit,for which no simple rules can provide sufficient guidance.(Hayek, The Constitution of Liberty, p. 336)83 The various systems and agencies designed to “insure” createddeposits in many western countries tend to produce an effect which isthe exact opposite of that intended when they were established. These“deposit guarantee funds” encourage less prudent and responsible policiesin private banking, since they give citizens the false assurance thattheir deposits are “guaranteed” and thus that they need not take theeffort to study and question the trust they place in each institution.These funds also convince bankers that ultimately their behavior cannotharm their direct customers very seriously. The leading role depositguarantee or “insurance” systems played in the eruption of the Americanbank crisis of the 1990s is covered in, among other sources, The Crisisin American Banking, Lawrence H. White, ed. (New York: New YorkUniversity Press, 1993). It is therefore disheartening that the process ofharmonizing European banking law has included the approval of Directive94/19 C. E. of May 30, 1994, with respect to deposit guarantee systems.This directive establishes that each member state must officiallyrecognize a deposit guarantee system and requires each Europeancredit institution to affiliate itself to one of the agencies created for thispurpose in each country. The directive also establishes that guaranteesystems will insure coverage of up to 24,000 ecus on all deposits madeby any one depositor, and that the European Commission will revisethis figure every five years.