Ruth Bergan, Trade Justice Movement
Is it possible to reform the banks?
This question makes me want to go and lie down in a darkened room. But if we’re going to get change, it’s not going to be enough to say what we don’t like, we also need to be able to point to a different way of doing things.
Since I was looking for concrete proposals, I found the NEF ‘Good Banking’ report the most useful (partly because it’s the most detailed). It starts with a definition of what we want from banking: “To facilitate the allocation and deployment of economic resources, both spatially and temporally, to ecological sustainable (sic) activities that maximise long-term financial and social returns under conditions of uncertainty” – which I understand to mean that banking should be at the service of people and the environment, not the other way around. This may sound obvious, but I imagine it is worth pointing out if you’re ever in conversation with a banker. You could follow this by reeling off a few facts (from the Guardian article) on the size of the UK bailout and commitment to the banks (if this doesn’t have them looking a bit scared, they’re probably an alien) and asking if they think it is a situation that’s compatible with those aims.
The NEF report outlines a useful list of areas they think need tackling (and that the government is not addressing), including: the size and complexity of the banks (i.e. that they are still ‘too big to fail’); risky investment behaviour; excessive pay; the lack of lending to the real economy and the financial lobby. I think if we all armed ourselves with this list of areas for reform, it would be a good first step in the battle for change. If you want more of the low-down on just how little the government is planning to do to reform the banks, Jill Treanor’s article gives a useful overview of the main weaknesses of the government-commissioned Vickers report.
On the subject of ‘stuff that could be useful when arguing for radical banking reform’, here are a couple of quotes you might want to add to your armoury: from Mervyn King: “Of all the many ways of organising banking, the worst is the one we have today”, genius. From the report: if banks had paid 20% less in dividends and bonuses, they would have reserved more than the state paid out in bailouts (insert expletive).
I also stumbled across ‘Stakeholder Banks: Benefits of Banking Diversity’ on NEF’s website, which is worth a read; it outlines alternative ways of organising banking from a survey of 65 different countries. Turns out that in France, Cooperative banks represent a larger share of the market than commercial banks, and in Germany state-owned savings banks represent 40% of the market, cooperatives 24%. The really important difference is that these banks don’t have the single overarching aim of maximising shareholder value, they all seek to balance profit with social goals. Ellie Mae O’Hagan also suggests some really specific alternatives to the current system, with a big focus on the advantages of credit unions, including: the absence of casino finance; members not customers and no dodgy loans, bonuses or millionaire CEOs. Hooray, the alternatives already exist!
I’d say the remaining two articles possibly fall into the category of red herrings. Sony Kapoor and Philip Lamberts focus on the issue of bonuses. The sheer size of bonuses is of course outrageous but I think we’ll be missing the point if all we do is try and get bonuses capped (to the level of already massive pay packets..). And anyway, if there’s one thing we’ve learnt, it’s that bankers are very good at finding ways around those kinds of rules. Similarly Patrick McCurry’s non-profit bank looks to me like a PR stunt for commercial banks (or possibly a tax avoidance scam) and a complete distraction from genuine reform (cf the huge rates of interest they seem to want to charge on loans vs. the rates they are currently giving to savers). Surely we don’t want the folk that just crashed the global economy to be given the power to decide what charitable activity is worthy of support?
So in sum: read NEF, Treanor and O’Hagan to arm yourself with a detailed analysis of what exactly is wrong with the banking system and what some of the (already existing) alternatives are. Read McCurry and Kapoor and Lamberts so you’re ready with the counter-arguments for those who want to engage in edge-tinkering or window dressing.
Each week someone from the econowhat? team will be reading the books and articles and watching the film. That person will post up their comments here to get the discussion started, then please add your own comments. The bloggers are not expert economists, but other people we know are, so don't be shy to ask questions.
Nadia Idle, War on Want
Maddy Evans, Jubilee Debt Campaign
Ruth Bergan, Trade Justice Movement
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