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The Tyrie Commission report on banking is too narrow and misses the real point

The Tyrie Commission, after 9 months of deliberation and 571 poages of reporting, has disappointingly limited its purview to governance, standards and culture – issues which certainly cry out for reform, but which are not at the heart of what is really wrong with the banks. But on those issues it has been promisingly radical. It would be difficult not to be when the bankers have nearly blown up the global economy and have so far received nothing more painful than social opprobrium and a reduction in pay and bonuses from the outlandish to the merely excessive.

Nevertheless it is good that there is now real pressure on the Treasury behind the idea that key responsibilities within banks should be assigned to specific individuals (‘the senior persons regime’), together with a licensing regime for any bank staff who could “seriously harm the bank, its reputation or its customers”. It is better still that the report proposes a new crime of ‘reckless misconduct’ for bankers as well as reversing the burden of proof against bankers in civil cases.

The big weakness of the Tyrie report however is that it leaves the fundamental questions of the purpose, functions and structure of the banks untouched. This of course reflects Cameron’s and Osborne’s desire to maintain those aspects of the banking system as they are whilst simply focusing on the collapse of public trust and how to restore it.

The report therefore omits any analysis of the impacts of the de-regulation of finance, the privatisation of domestic credit creation, the control of the money supply, the development of wholesale money markets, the relationship between the City and the needs of industry and manufacturing, the functions and structure of the finance sector in today’s economy, the evolution of the shadow banking world of private equity and hedge funds, and the proliferation of exotic derivative instruments.

Given the extent of the omissions, the utility of the report is severely limited. Worse, it perpetuates and deepens one of the fundamental fallacies of the relationship between the State and finance. It opines that the government has ‘interfered’ in the running of RBS and Lloyds in a way that is ‘clearly not acceptable’. This is an extraordinary standing of the facts on their head.

It is based on the premise of neoliberal capitalism that markets rule to the extent that when things go well the profits are privatised and when things go badly the losses are socialised – and not only that, but when the losses are socialised (in this last case, at several hundred billions of pounds of costs to the taxpayer) the State – on behalf of taxpayers – should make no intervention whatever in the free play of market forces. That must surely represent one of the biggest stitch-ups in history.

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