The return of greed on a debauched scale in the City, which the Government has made no attempt to stop, simply exposes just how far the banks have taken over the State. Those who triggered the financial crisis in the first place have been allowed to resume business as usual – in the case of RBS and Barclays with half-yearly profits of £3bn each – without any lessons being learned and without any new regulations being put in place to stop a recurrence. Unimaginably vast sums of taxpayers’ money (£904bn so far, according to the IMF) have been poured into protecting the banks from the consequences of their own crass recklessness, yet with little or no quid pro quo in the banks protecting taxpayers’ jobs and homes. Maintaining lending to businesses at the pre-crunch levels, which was the ostensible aim of the exercise in the first place, has been allowed to dissipate to such a degree that it actually contracted by nearly £15bn in the second quarter of this year, yet Government has done nothing except lecture the banks on their promises – which must have had them laughing all the way to their bank. This must be the most blatant abandonment of financial responsibility by any Government in modern times. So what really should be done?

Several steps need to be taken in the short, medium and long-term:
1 Most immediately, banks should be made to increase their lending to businesses and home-owners substantially. The M4 money supply, which measures this, has registered a fall from a growth rate in this lending of 19.8% in February 2007 to just 0.3% in May this year, and it may well be negative by now. Top management in the part-nationalised RBS and Lloyds should be instructed to reverse this policy straightaway, and if they fail or decline to do so, should be replaced by those who will. If HSBC and Barclays do not follow course, they should be required to do so by regulation.
2 Now that most banks are beginning to return to profit, some hugely so, the terms of the exorbitantly generous asset protection scheme should be reviewed. It was born in light of the collapse of Lehman Brothers when there seemed to be a real danger of global banking collapse. Now that that has clearly passed, the £585bn of taxpayers’ money that was originally devoted to the scheme shouold now be drastically cut back. This would significantly reduce the level of public debt and thereby also sibstantially ease the pressure on the public accounts and the need for large public expenditure cuts.
3 The role of the banks within the economy should be greatly reduced relative to the real engines of growth in manufacturing and services. The Chancellor regularly refers to the £25bn annual revenues from the finance sector, but not to the apocalyptic cost to the wider economy of the magnitude of banking incompetence or recklessness, which far outweighs it. Britain is put at great risk by carrying bank liabilities at a far higher multiple of GDP than any other country except Switzerland. The truth is that a bank that is too big to fail is too big. The banks should be significantly shrunk to avoid this risk in future.
4 Procedural reform of the banks should be put in hand, not ignored or resisted as the Government has done for 2 years now. The casino investment arms of the banks should be split off. Capital ratios should be raised to levels large enough to absorb any imaginable banking failures. Pay and bonuses should be strictly controlled at moderate levels by the FSA/Bank of England, preferably in accordance with wider guidelines drawn up by a High Pay Commission which is urgently needed across the whole economy.
5 Once normal conditions have returned post-recession and the costs of the meltdown to taxpayers can broadly be assessed, the banks should be expected to repay most, if not all, of the vast funding that saved them from extinction. The reasons for this are compelling. Whenever banks have themselves lent extensive funds to businesses or individuals, they require full reimbursement from their clients so long as they are able to pay. In addition, if huge cutbacks are indeed made in public expenditure levels as a result of the crass incompetence of the banks, then those who have been forced to pay the price to save the banks should be compensated as quickly as it is feasible for the banks to do so. For that purpose, a supertax should be imposed as a proportion of banking profits in future until restitution has been reasonably secured.

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