Wednesday 18 November 2009

Reforming the banks. Building a better financial future.

It does indeed look like the Government will now intervene to stop bankers and financial institutions from abusing the people's trust. We shall see! Nice to see Angela Knight from the British Bankers' Association trotting out the old line about if we tax etc these wonderful people too much they will flee our shores- oblivious to the fact that many of us are thinking what a shame these very people did not indeed flee our shores so much earlier and prevent the plunge to disaster. Perhaps just a little hint of regret? Acknowledgement of failure? Learning from mistakes? Clearly not. Like the Bourbons in France. They "regret rien".

In the meantime I am delighted to plug a new report from the New Economics Foundation "Banking reform or bust – towards a new ecology of finance".

It argues that only radical reform of the UK banking and financial sector can deliver institutions capable of investing and lending that is economically and socially productive. They have produced an alternative white paper on banking reform in anticipation of the Treasury’s follow-up White Paper on banking, expected this month.

Rather than seeking a technical fix for our sick financial sector Government should be having a philosophical rethink. A return to business as usual would prevent the Government’s own stated ambitions of a more competitive and diverse sector from being realised. So we need to reform the entire banking and financial sector according to what the proper function of finance should be. No longer wedded to short-term and profit-driven models of lending and to risky, volatile speculative investment, the banking sector would, instead, form a highly diverse ‘ecology’ of institutions that range in structure, market sector and scale; adapted to the complexity and shared long-term goals of the economy.

Reforms to rein in the excesses of the financial system must be combined with positive measures to harness the potential of both mainstream and alternative financial institutions.

Recommendations include:

· Separating retail from other banking and preventing deposit-taking banks from engaging in other, risky activities

· Setting up a social investment bank

· Regulating financial institutions according to their functions and how risky their activities: the bigger the bank the higher the capital requirements

· Reforms to encourage more mutuals, co-ops and community finance

· Legislation to force banks to be open about their lending and to lend to the financially excluded.

The report is available to download from their website click here.

I'm sure this is required reading by my friends in the British Bankers' Association. Time for change.

I would like to see the Government going further. The Queen's Speech is a good start but we need to ensure feet remain firmly held to the fire. And we need the Government to be radical in their reforms.

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