There are three overriding issues at this time – climate change, the Middle East and Afghanistan, and banking regulation – yet the third, which is absolutely crucial to preventing another global economic meltdown, continues to get only desultory attention apart from the anoraks. This applies once again to the latest Darling bail-out. It is staggering that another £39bn, greater even than the £37bn handed out to the banks in October 2008 to stave off collapse, has just been awarded to the banks without so much as a quibble. That means that no less than 5% of Britain’s entire GDP has now been poured into the banks to save them from their own folly, with the result that both the main parties are now looking to horrendous cuts of 15-25% in public expenditure in this next year and thereafter. The public is so bemused by the sheer scale of the figures bandied about that they have lost the sharpness of critical judgement that they would normally bring to bear on much smaller issues. This is tragic for two reasons. The colossal flood of public subsidy is being poured out without any real regulatory reform to prevent a recurrence, and it was anyway not inevitable – there is a better alternative available.

Bank reform has been blocked by Alistair Darling’s refusal to contemplate anything but minimalist change in order to preserve the primacy of the City of London. This is rationalised by the curious argument that the banks contribute some £25bn a year to the Treasury, whilst ignoring that the bail-outs have already cost the country over three times that much and if the Government’s underwiriting of all the toxic assets were called on (not unimaginable if a second-dip slump occurred) the banks could cost the country up to £1,200bn according to the Treasury’s own figures.
As a result of this unwarranted deference to the City, Darling has refused to contemplate public ownership (though that would have been far less costly) and insists that the banks are best managed in private hands – even though Lord Myners, the City Minister, recently described RBS, to which the Government has now given £40bn to keep it in private hands, as “the worst managed bank this country has ever seen” when run by its previous private management. Darling has also refused to take any action that would force the banks to increase their lending, now at record low levels, to cash-starved businesses and home-owners. He has refused too to split the investment arm of the banks from the retail arm, even though that was the root cause of the original collapse and will be again unless this is addressed.
There is an alternative to this craven laissez faire indolence. Instead of the three minor spin-offs required by the EU as the price for sanctioning this latest vast bail-out, we need a genuinely competitive banking structure which wholly removes the risk of banks too big to fail which are then a catastrophic millstone round the neck of the taxpayer. We should break up the cosy semi-cartel of the Big Four (as Mervyn King, Governor of the central bank, has been advocating) and create perhaps a dozen banks focusing much more strongly on investment in industry and services rather than speculation, and specialising in key areas that are currently under-resourced like infrastructure, R&D, and innovation. We shouold also (as Adair Turner, chair of the FSA, has been advocating) restructure the market operations of the banks by requiring their capital ratios to be raised according to the riskiness of their activities, whilst at the same time either eliminating bankers’ bonuses or greatly restricting their size or scope linked to a far wider range of indices than share price or profit.

Bookmark to: