The debate in the House of Commons on 11th March 2013
featured the draft Financial Services (Banking Reform) Bill. http://jsy.fi/YXs1UF
The debate contained a fair amount of vilification of banks and
bankers, the charge sheet ascribing the global crisis exclusively
to the banking industry. Five years on there appears to be no
diminution in the appetite to blame bankers for any and every issue
under the sun.
John Mann MP managed to bring the Crown Dependencies into his
speech alleging all kinds of dark doings, referring to a bulging
file of evidence, but producing none to justify his extravagant
No mention of the role of governments around the world in
putting pressure on to keep interest rates low, to safeguard
employment and to lift stock and house prices, creating asset
bubbles. No mention of governments pursuing debt fuelled growth,
leading to the UK borrowing more than it receives in income, year
after year, long before the banking crisis emerged.
No mention too of overt political pressure on financial
inclusion in banking, encouraging universal access to banking
services including for those who could not really manage or afford
Leverage and the 'greed' fuelled over extension of banks
lending books featured, but little on the rule books which
sanctioned the growth, extending to over 6,000 pages, and a
supervisory system that failed to detect a systemic dependence on
wholesale funding; the fundamental cause of the bank failures in
Proposals on nationalisation, bond for equity swaps, fines,
bonus claw backs, and criminal charges were all advanced; indeed
much comment on everything but the structural reforms proposed in
Constructive and insightful commentary came from the Banking
Commission members themselves particularly John Thurso and Mark
Garnier with comprehensive overviews, Andrea Leadsom on account
switching, and Steve Barclay on individual accountability.
What was missing though was what is needed to ensure a recovery
in banking leading to a recovery in support for the real economy.
The part nationalised banks have the ball and chain of constant
condemnation, with calls for full State ownership. Given they are
all still in the recovery ward this would be taking onto the
already precarious government balance sheet their bad debts and
The main drag on the restoration of part State owned banks has
been the constant speculation over their future, impeding a
recovery in share prices and a profitable government exit.
The fundamental problems with getting banks to do what
politicians would like them to, that is lend to small business were
not done justice.
Banks are not lending enough for two reasons.
The first is that customer demand is subdued. Of course examples
of that worthy business starved of the cash it needs, can always be
served up, but the reality is most businesses do not have the
confidence to borrow to invest, because their customers don't
have the confidence to buy.
The second reason is that widespread calls for banks to hold
more capital to guard against failure continue to come strong and
loud from every quarter. If more capital has to be held, and
leverage ratios are to be reduced, a bank can respond in one of two
ways. Raise more capital (usually through more equity) or shrink
their balance sheet. In a recessionary environment the latter is
much easier to do than the former. The consequence is a lending
It can reasonably be argued that banks could hold more capital,
they will be less risky, but this will make them less profitable,
employ fewer people, transfer mobile operations overseas, and pay
less tax. I don't think they are the outcomes the honourable
members were arguing for in the debate.
The problem with the 'Politification' of banks is that
they are being asked to deliver multiple and conflicting
objectives, whilst being pilloried and flagellated every step of
the way. Small wonder they are making slow progress.
An industry which leads the world in banking expertise, employs
1 million people and contributes with financial and professional
services £64bn in net export earnings, more than all other
industries combined, needs to be healthy, functioning and supported
for the good of the United Kingdom.
Banking has a lot to repent of, but if it can never be
recovered, there will be no recovery.
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