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Bank regulation 8 years on, why has next to nothing been done?

The real root probleBanking trade screensm with regulating the banks is that the politicians are hand in glove with them. The Tories don’t even want to regulate the finance sector so long as it provides them with half their annual income year after year, not just the banks themselves, but the hedge fund billionaires as well. Worse still, no attempt whatever has been made to deal with the fundamental point of corruption – that whatever the big 5 banks do, they will be protected by the ‘implicit guarantee’ that the government will save them from themselves and bail them out because they’re ‘too big to fail’, too valuable an asset to lose, too crucial a part of running the State, etc. Risk-taking at a bank that will always be saved is like playing Russian roulette, but with someone else’s head.

The problem is not what the State does, but that its hand is forced. Knowing that governments must bail out banks means parts of finance have become a one-way bet. The IMF recently estimated that the world’s largest banks benefited from implicit government subsidies worth a total of $630bn in one year alone, 2011-12. This perversely makes debt cheap, and promotes leverage. In America meanwhile there are proposals for the government to act as a backstop fir the mortgage market, covering 90% of losses in a crisis. Again this pins risk on the public purse – it’s the same old pattern, socialise the losses and privatise the gains

Removing the subsidies banks enjoy will not only mean that debt becomes more expensive, so that equity holders will lose out on dividends and the cost of credit could rise. Much more importantly it means seriously tackling the need for the re-introduction of ‘moral hazard’, i.e the awareness that there will in future be no guarantee of State bailing-out or reimbursement for reckless or incompetent lending. It is inconceivable that that this will happen when the political establishment is so so deeply enmeshed in the finance sector. The evidence for that is the bail-out to the tune of £68bn, the failure to take any effective regulatory action against the banks for the last 8 years, the postponement of raised capital buffers under Basel III till 2019, the ditching of Martin Wheatley the attack-dog chief of the FCA after heavy bank lobbying, and now the imposition of the deadline of 2018 for any further claims for the 10m customers who were illegally mis-sold payment production claims they neither wanted or needed.

This will only change when that cosy, collusive, symbiotic relationship between State and finance is peeled away, made transparent, and transformed into a proper arm’s length working partnership. That requires a fundamental shift in the power structure, and the rise of Corbyn is the best hope in the last 50 years that this might be achieved.

Image Credit: 123RF.com Stock Photo ID : 11147445 by Thomas Becker 

3 Comments

  1. J.P. Craig-Weston says:

    As sensible, level headed and as terse an article on this often contentious topic as I’ve read here recently, (although I think that everyone has now had enough time to claim their PPI back by now; so the deadline is reasonable,) but as for JC being the answer, well lets hope so, although personally I’m having some difficulty with that, as with a lot of the other stuff that we hoped would change as result of us electing him ?

    The Labour party conference, which I and a lot of other had looked forward too with keen interest and enthusiasm, turned out to be a faintly sad, wholly unconvincing and pretty limp wristed affair that’s left me and also other people that I know feeling somewhat demoralized, skeptical and more than a bit cynical.

    Round here it’s as if it never happened and I somehow feel that that JC’s election is still deeply resented by our local CLP and I suspect also that the real support round here is still for Debbie Abraham’s, “valued friend and colleague,” (her words not mine,) who would be welcomed with open arm if he made a bid for the leadership.

    Which is to say that as far as I can tell there’s really not much of JC’s brand of democratic socialism in evidence round here at all.

  2. Peter Rowlands says:

    Michael is quite right, although I would like to see this issue assume a more prominent place for the new Corbyn Labour Party – its popularity can after all not be doubted. It is essential that the big banks are broken up so that a bailout as in 2008 need not take place in the event of a further banking collapse, while capital safeguards are brought forward. The constant stream of banking scandals renders the current banks unfit to continue and a danger to our economic well being.

  3. bill says:

    I think we should retain or take back one of the banks. re brand that The Bank of England with branch offices. This would be state owned and the only bank that guaranteed savers money.

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