Fabian's Blog

Bankers protest about proposed reform - what staggering irresponsibility

Wednesday 7th September 2011 10:16 AM

The United Kingdom has a very large banking sector in relation to the size of the country and our economy and it makes a very significant and indispensable contribution to economy. That said our banks must always remember that when their lending went wrong our government bailed them out. Banks with their worldwide connections lent money willy-nilly to clients who were completely unable to contemplate paying them off and then sold on the debt to other banks in the form of toxic bundles of liabilities - money owed that would never be repaid. The support our government gave to the likes of RBS, HBOS, Northern Rock not only saved the UK economy from collapsing but it also saved the institutions themselves, though their directors appear to have forgotten this.

The government has proposed that banks are regulated and required to separate their high street business - looking after the accounts of individuals - from the investment sector that lends to smaller banks and companies. Out of the woodwork has come a chorus of objections from the Confederation of British Industry and the banks themselves citing all kinds of dangers and costs that will arise if the measure goes through. Methinks they do protest too loudly. I am suspicious that vested interests are at play to try and avoid banks having to behave with greater financial responsibility. The government argues that any investment bank that lends unwisely in future must understand that its own failure will be a distinct possibility but that it is determined to maintain and guarantee the money of individual depositors in retail banks and building societies. The only way to do this is for each bank to split or separate its two respective operations into two separate companies.

The banks do not like this idea. Without the knowledge that in the last resort they would be bailed out by the government in order to protect the economy and savers they will have to be more prudent and keep in the bank more money as a buffer against any losses in their investment operations. The CBI argues that this reserve they will carry will mean fewer business loans can be made. I know that most businesses need bank loans in order to carry on trading while they wait for their creditors to pay their bills. I recognise the risks of good businesses being unable to trade because they cannot borrow money to operate. However, I believe that this is a lesser evil than another banking crisis, the inevitable deep recession and the pain of the government having to borrow yet more from overseas and add to world worries on currency stability.

To the banking industry, I say, "shame on you - you have not reformed". Your grotesque salary and bonus culture has not abated. You foreclose loans to businesses prematurely, unnecessarily forcing good job-providing companies to close. You have been getting your bulk money at next to nothing from the Bank of England yet you are charging overdraft and loan interest rates that are exorbitant. You move jobs to cheaper countries overseas and make UK employees redundant. You close bank branches and inconvenience your customers. Your savings products offer lamentably low rates of interest. You have deceived customers by promoting unnecessary and highly priced protection insurance. You have ruined the opportunities for a generation of people to own their own homes. Your previous irresponsibility has threatened the whole pensions industry. You are in no position to expect the government to respond to your bleating about this reform. Bankers, get back behind your counters and start counting out your money again and if you want to make a protest, aim your fire on your friends in the Conservative Party and tell them about the important responsibility of government spending, making money move around to drive the economy forward thus creating the jobs and the productivity our country so desperately needs.