We need real banking reform, not this half-hearted attempt


by Guest    
9:02 am - September 12th 2011

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contribution by Brendan Barber

The Vickers team have been asked how to make the banks safe, but the real question is how we make them useful.

Tougher capital requirements and ring-fencing will be bitterly opposed by the banks, who will now lobby hard to water them down. They should be resisted.

But while we need to avoid another finance-driven crash, safer banking on its own will not help drive the investment and create the jobs we need. Indeed, unless we take other action tougher capital controls could even limit credit at a time when businesses complain they cannot get affordable loans.

Real reform of banking would start with setting out what we need our banks to do. Banking should be a utility just like energy and water – supplying credit and the other services that our productive industries and services need.

The spectre of a double dip is raising its head. We desperately need an economic stimulus. Unless we move to a low-carbon economy, we face climate chaos.

The real challenge therefore is how to raise investment – not just by companies but in infrastructure and the public works that can provide jobs, restore confidence and kick start growth.

And while the political classes seem rather embarrassed and can’t wait to get rid of them, the public has big stakes in two major banks. It’s time we put them to work on behalf of the public.

So let’s talk about a proper Green Investment Bank set free from Treasury restriction. Other countries have them, so why shouldn’t we set up a national investment bank with the long-term horizons that can meet the investment gap? What about regional banks who don’t have remote head offices to say no?

I regularly meet business people who are as critical of our short-termist speculation driven banks as we are.

We should campaign together for a banking system that works for us, rather than one that has everybody working for the banks.


This is the speech Brendan Barber will give today on the first day of the TUC Congress

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Reader comments


Your post makes lots of very good points but you need to make it clear that, even if they haven’t solved all the problems overnight, this ring-fencing is the single best thing the government can do to the banks on the behalf of the public.

I don’t think it’s constructive to expect policy to overturn over a decade of learnt behaviour in a single announcement. Now that ring-fencing has been decided on, you only need a couple of much smaller adjustments plus time to get to the point you’re arguing for in your post. It’s undoubtably true that these adjustments won’t come, however, contrary to your sentiments above, this ring-fencing is actually a much bigger step than I think you give it credit for.

“… this ring-fencing is actually a much bigger step than I think you give it credit for.”

The trouble is, in the failing plutonomies of Britain and the US we’re so far up the creek that we are going to need some huge paddles to help us back to survival, Chris.

So yes, we also need a Green Investment Bank, one that can raise funds.

We need to escape the megacorps that siphon everything away to faceless financial bureaucracies and get interested again in small businesses that do socially useful tasks and provide employment for people at fair wages. “I suggest we … provide a bank for small and medium-sized as well as large U.S. corporations” recognises PIMCO founder Bill Gross.

http://rortybomb.wordpress.com/2011/09/09/on-the-asymmetry-of-the-impotent-bond-vigilantes/

Even some of the super-rich are now crying out that plutocrats need to pay more tax! So what’s stopping us from collecting that money to put to sensible use?

We need a complete rethink of our economic structures. So yes, we have a long way to go and this is just a small start.

It can be confusing to talk about “banks” in a big lump – much of what The City does (stockbroking, corporate bonds, swaps, futures etc.) plays a large role in the productive economy and whilst it has its short-termist aspects, is often about the long-term – secondary stock markets, for example, are part of a long process that takes companies all the way from inception, venture capital, and flotation. Investors are more willing to enter when they know they can exit. The stock market puts great value on long-term profitability – Vodafone wouldn’t be worth nearly so much if everybody thought it was only going to make money for the next 2 years. The role the stock market plays in shaping resources allocation (people trying to create firms that will be highly valued by investors) is, I think, very poorly understood generally, especially on the left.

Then there is corporate lending. Contrary to what this speech excerpt suggests, banks are quite willing to fund long term projects. There are ample examples. Banks will lend when they think they will get a return, so they will fund projects with a good prospect of profitability. This is “useful” banking, and I think banks are doing their job in this regard (although as OP mentions, having to get back in shape after the crash means credit supply might be tight right now – the picture really isn’t clear there).

However, there is still a potential role for state investment banks – to fund projects which aren’t profitable in the commercial sense – perhaps because the returns are “social” and cannot easily be monetized and turned into loan repayments, externalities and all that jazz, or perhaps because there is a co-ordination problem that private actors cannot easily solve, but a large central entity can (potentially) corral everybody into action. I’m thinking of big ambitious infrastructure projects, that sort of thing.

Supporters of state investment banks and such like should also be aware of how they can go wrong – by which I mean waste tax revenues and lead to worsening economic performance, reductions in real wages etc. But that topic deserves a post on its own – one thing to think about, given the current political landscape in the UK, who do we think is going to end up running these banks?

Lord, make me chaste. But not just yet.

I assume 2019 is the long grass, by which time there will be another excuse to prevent anything actually being done. That’s assuming the banks haven’t collapsed again by that time and the world isn’t being ruled by giant mutant radioactive cockroaches

“Green Investment Bank”

Raising bills equally with every penny it provides, woo! (and in many cases, that’s a low estimate…) Well, that’s one way to cut energy consumption, make it too expensive for the poor!

There’s a world of difference between “national” and “green”.

Leon: if by Green they mean Green, I’d say you have a point. If by Green they mean ‘sustainable’, that’s rather different. Really anything we do should, where possible, be sustainable; i.e. something you can still do again tomorrow, next month, next century.

Any other philosophy is arguably short-termist.

And no, I don’t live that way yet. AFAIK the only way to do so in this culture is to become an energy- and food-self-sufficient recusant. That’s quite hard.

7. Leon Wolfeson

If they mean “sustainable”, then they need to say so (and that has it’s issues, too). I take “green” to mean “green” energy projects. And you want sustainability at the local level? Oh, whoops, your costs just went up by an order of magnitude…

I’d like to be sure that any policy intended to protect us does something about the “Too big to fail” problem for a start. Is there anything about it in the Vickers report? I haven’t heard of it, only the idea that greater capital reserves should offer more protection. Faced by a similar crisis to the sub-prime crash would the new requirements do more than give us a week or so more dithering time?

Similarly, how much less likely would the Vickers proposals make it for governments to have to bail out failing banks? That business of privatising profits and nationalising risks?


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  2. Lee Hyde

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  3. Jason C Healy

    “RT @libcon: We need real banking reform, not this half-hearted attempt http://t.co/2ymQiNb” #in #uk #banking #austerity #bailout #economy

  4. Liz Todd

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  5. Rufus Hound

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  6. Rufus Hound

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  7. Spir.Sotiropoulou

    We need real banking reform, not this half-hearted attempt | Liberal Conspiracy http://t.co/66YZuq5 via @libcon

  8. Alex Braithwaite

    We need real banking reform, not this half-hearted attempt | Liberal Conspiracy http://t.co/EqEf3tV via @libcon

  9. Jon Ravenscroft

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  10. Hywel N. Arnold

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  11. Len Arthur

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  12. Toni Segovia

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  13. Andy Hunt

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d

  14. Julie Clarke

    We need real banking reform, not this half-hearted attempt http://t.co/0griy2d





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