Latest figures show Big 5 banks are now lending only half to SMEs that they pledged under Operation Merlin to an enormous fanfare of self-congratulation a year ago. There have been no checks imposed on proprietary trading or on transactions in financial derivatives, both of which were main contributors to the financial crash of 2008-9. The assets of RBS and Lloyds are only half the value they were in May 2010 so that taxpayers continue to make a thumping loss on their bailouts despite ploughing £200bn of quantitative easing into bank coffers. And to cap it all, the Vickers Commission’s proposals will not have to be implemented till 2019! Their proposals of Chinese Walls between retail and investment banking are much weaker than the Glass-Steagall full separation passed by the US Congress in 1934, yet in the latter case the banks had just one year to comply. How do the banks get away with it?
If an aircraft was found to be unsafe, immediate urgent checks and repairs on the whole fleet would be implemented in weeks, if not days. Given that in the worst scenario arising from the Eurozone sovereign debt crisis another financial crash cannot be ruled out, how can a delay of 8 years even be contemplated? One answer is that the Tory party gets half of all its donations from the financial sector. Another is that the role of the banks in neoliberal capitalism is so dominant and so integral to the power structure of the State that politicians are far too subservient to bank lobbying.
Equally the regulators are also heavily biased in favour of the banks. The Basel Commission on Banking Supervision is actually a private body composed of central bankers as well as some regulators. After experience of self-regulation by MPs, the police, the media and the banks, what more evidence do we need in support of Goodhart’s law that no body or institution can ever be trusted properly to regulate itself?
Banking crises are caused by credit-driven asset bubbles. The test of banking reform – in addition to full retail-investment separation and a 1-2 year timetable for complying with all reforms needed – is the restoration of democratic accountability over the banks via regaining public control over the money supply. Since the Tory Competition and Credit Control measures in 1971 and Thatcher’s Big Bank in 1986, domestic credit creation has been usurped by the commercial banks and has expanded exponentially, completely out of control. This has to be at the centre now of banking reform.
