One couldn’t put it better: ‘Some prominent firms/banks have been mired in scandals that violate the most basic ethical norms’. ‘Unchecked market fundamentalism can devour the essential social capital’. ‘A fierce industry push-back by the banks’ is blocking much-needed reforms and risks destabilising the global economy.
When the high priests of capitalism at the IMF and Bank of England have become so desperate at the waywardness of their flock as to be preaching so defiantly the message of the Left, it might seem that real reform is finally in the air. Especially when regulators internationally (mainly in the US, not much in the UK) have already imposed penalties of $5.8bn for attempts to manipulate market benchmark rates.
Not a bit of it. Several top level banks (e.g. HSBC in the UK, JPMorgan in the US, and Credit Agricole in France) are still delaying settlements, refusing to admit wrongdoing, or resisting charges that they manipulated the Euribor interest rate. And the Bilderberg enclave meets this week in Copenhagen, 130 members of the West’s ultra-rich and powerful in private session in the utmost secrecy, plotting together how they can preserve this broken, dysfunctional capitalist system and resist reform at any cost.
So what needs to be done?
- Much higher capital requirements should be mandatory for any bank (or shadow bank) likely to pose a systemic threat in a crisis.
- There should be requirements for long-term debt that can absorb losses in an emergency. Tax incentives to take on debt should be removed.
- Safer bank deposits should be backed by far higher reserve requirements.
- There should be clearer rules to wind down complex financial institutions when they become insolvent.
- The investment arm of banking should be completely separated from the retail arm (not the half-hearted Vickers ‘Chinese walls’ which will be rapidly undermined by regulatory arbitrage), so that speculators bear the cost of their own recklessness, not taxpayers.
- Limited liability, which is a privilege not a right, should be restricted, and certainly withdrawn from all gambling activities.
- And banks that repeatedly resist reform, breach fundamental ethical requirements, and buck the public interest in favour of short-term speculative profit-making should either be broken up and restructured or taken into public ownership with a wholly different agenda.
The banks continue to be at the epicentre of any crisis if, as predicted, the economy turns down again either in or after 2015 or the eurozone, as seems likely, slumps into deflation. Moreover there are several ominous bubbles out there, not just in the UK housing market, but also in leveraged loans, exchange-traded funds, eurozone sovereign debt, and European bank paper. The caveat in all this is that reform of an utterly dysfunctional banking system has been glacial, minimalist and deeply resisted, and until this is systematically redressed neither the UK nor the global financial network will be safe.