13 Sep 2011

Bankers let off the hook

Demo this year - see here
The radio has been full of how the Government intends to implement the recommendations of the banking reform report. Anyone listening would think all the problems will be solved.

Sir John Vickers, chairman of the Independent Commission on Banking, published his final report on banking reform yesterday which includes the ringfencing of banks' high street businesses from their "casino" investment banking arms. Well there are some steps in the right direction but the report sadly falls far short of what is needed - see my post back in April here.

Caroline Lucas, MP commented: "While the Vickers report includes some steps in the right direction, the fact that it fails to offer truly wide ranging and meaningful proposals for bank reform reveals a fundamental flaw at the heart of the ICB. The Commission's narrow remit renders it powerless to address the issues key to creating a safe and useful banking system - such as the nature of credit creation and tax reform, as well as bankers' bonuses.

"We are still in recovery from the biggest financial crisis for 80 years and struggling to keep our heads above the deep waters of recession, whilst spending billions on 'too big to fail' subsidies for the largest banks (see here). Yet all the ICB can offer UK taxpayers is a limp collection of compromises which will fail to protect us from future banking catastrophes. For example, simply ringfencing 'casino' investment banking and high street banking won't work - not least because contagion can still spread between the two. These are different operations requiring different regulations, which only a complete structural separation between retail and investment banking can provide. Add to this the fact that Vickers suggests giving banks until 2019 to get their houses in order and it seems that the intense lobbying by the banking industry has really paid off."


"Ultimately, no one is asking the crucial question - what should a good banking system look like?  We need to do far more to ensure universal access to low cost banking services, and to force banks to provide affordable finance to small and medium businesses. We also need far more diversity in the banking system in the shape of, for example, mutuals and credit unions - in order to reduce our exposure to market instability and protect us from the worst effects of casino capitalism. By increasing the number of smaller banks, we can boost competition and choice in the UK banking sector, where the majority - 85% - of current accounts are held by five banks giants.

"Compare this with Germany, where only 13% of banking assets are held by the large international banks, with local and mutual banks accounting for 70% of the sector - where SMEs can expect far greater financial support, and where the 'too-big-to-fail' subsidy comes in at 38% lower than ours."

3 comments:

Philip Booth said...

See nef:
http://www.neweconomics.org/press-releases/vickers-commission-response-ring-fencing-doesnt-solve-the-too-big-to-fail-problem

Philip Booth said...

And this:
http://www.neweconomics.org/press-releases/british-banks-profited-from-%C2%A346-billion-%E2%80%98too-big-to-fail%E2%80%99-subsidy-in-2010-says-new-re

Philip Booth said...

Excellent report here:
http://www.positivemoney.org.uk/2011/09/independent-commission-banking-final-report/

The report is no surprise to us. In short, the Independent Commission on Banking has not addressed a fraction of the fundamental problems with the modern banking system.

The Banking Commission is not a response to the financial crisis and has done nothing to fundamentally change the likelihood of future crises. It has done nothing to reduce the harm that banks can inflict on the rest of the economy, or to look at the impact that the banking system has on poverty, debt and inequality.

Rather than looking at fundamentally changing the nature or structure of banking, they have focussed on what to do after the fatally-flawed banking system inevitably implodes.

Imagine that the government establishes a Commission to report on measures to reduce traffic accidents and deaths on the road, giving them a staff of 15 civil servants, a budget of millions, the opportunity to consult the public and a year to develop some radical reforms. Twelve months later the Commission reports back, but rather than suggesting measures to reduce traffic accidents, the Commission simply proposes that the crash site is cleaned up slightly more effectively, the bodies are removed more discretely, and post-crisis counselling is provided for the victim’s families. No mention of traffic calming, traffic lights or fundamentally re-designing the roads to make them safer; just an assumption that fatal accidents are inevitable and the best we can do is focus on the post-crash clean up.