If banks operated in public interest, there would be no need for a ‘Big Society Bank', argues Ruth Potts of the new economics foundation.
If banks operated in public interest, there would be no need for a ‘Big Society Bank’, argues Ruth Potts, manager of the Great Transition Campaign at the new economics foundation (nef)
As the UK government back-tracks over bank reform, there are signs that the Government has misjudged the public mood. Student protests have targeted bank branches as well as parliament, and while its impact remains to be seen, the Cantona-inspired BankRun2010 has attracted supporters in 15 countries around the world, the most significant in the UK and France.
A new campaign animation, inspired by Rolling Stone Journalist Matt Taibbi’s description of Goldman Sachs as a vampire squid “wrapped around the face of humanity”, released this week and supported by groups from 38 Degrees to Compass, ResPublica, PLATFORM, Positive Money and the World Development Movement is designed to up the ante on bank reform.
Evidence that emerged in the Financial Times yesterday would seem to indicate that two years after the financial crisis that sent shockwaves through the global financial system, Chancellor George Osborne is preparing to:
“… normalize relations between Government and the city”
– leaving banking regulation exactly as it was when the crisis hit. This is the same George Osborne, who, when presenting the Government’s emergency budget just six months ago, stated:
“In putting in order the nation’s finances, we must remember that this was a crisis that started in the banking sector. The failures of the banks imposed a huge cost on the rest of society.”
It is said that a week is a long time in politics. With regard to Government resolve to reform the banking sector, a few weeks is enough time for a total volte-face.
The rumour, reported in the FT, is that a deal is being struck in which bankers exercise a ‘degree’ of restraint over bonuses, promise funding to UK businesses (a promise they’ve previously broken time and time again according to small business groups) and provide funding for the ‘Big Society Bank’ any further talk of reform will be kicked into the long grass.
This “normalisation” of relations with the city strikes a particularly odd note when establishment figures such as Governor of the Bank of England, Mervyn King are becoming increasingly vocal about the need for fundamental reform of the financial system. He is emphatic that some of the much lauded attempts to reform banks are inadequate:
“If [Basel III, the latest international agreement on banking rules] is a giant leap for the regulators of the world, it is only a small step for mankind. Basel III on its own will not prevent another crisis.”
King is also beginning to ask very fundamental questions about how banking operates as this extract from a recent speech demonstrates:
“What we cannot countenance is a continuation of the system in which bank executives trade and take risks on their own account, and yet those who finance them are protected from loss by the implicit taxpayer guarantees… Of all the many ways of organising banking, the worst is the one we have today.”
And, newly revealed data from the Federal Reserve shows just how close to global financial meltdown we came. Investment Bank Goldman Sachs has frequently insisted it could have survived without taxpayer support. Fed data, released last week, tells a different story. At the height of the crisis, Goldman Sachs tapped one source of emergency funding 84 times borrowing almost $600 billion just to stay afloat.
Even with the promised ‘restraint’, it is likely that UK banks are preparing for another round of staggering bonuses, oblivious to the debts they bear to society. The banks claim that these payouts are necessary for attracting the best staff. But is that really true? Psychologists at MIT found that when students were set a task that required even the most basic cognitive skill, a larger reward actually reduced performance.
And there’s living proof that bonuses aren’t necessary for success. Sweden has a major bank, Svenska Handelsbanken, which doesn’t pay any bonuses at all. If banks operated in public interest, there would be no need for a ‘Big Society Bank’. It is time to take back our banks….Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.