Over at The Guardian’s Comment Is Free, Lib Dem deputy leader Vince Cable argues that simply “bashing bankers” will not solve the inherent structural problems in the banking system, and urges a considered response to address the issues. Here’s an excerpt:
Of course people are angry, and they have every right to be, especially when so many are losing their jobs in a recession triggered by a banking collapse. There are, however, different types of banks. Bonuses are a big issue in investment banks from proprietary trading, but are rare in retail banks. Some banks over-reached themselves and have been nationalised or semi-nationalised, but others have continued to operate successfully and sensibly – like HSBC, Clydesdale, Nationwide, and the Co-op. …
A central element in [banking] reform is resolving the “too big to fail” problem highlighted recently by the governor of the Bank of England: UK-based global banks that pile up massive commitments, as well as profits and bonuses, from speculative proprietary trading, all on the back of a taxpayer guarantee. Various ideas are being tossed around to deal with this, but nothing is happening. … It isn’t sensible to be dogmatic about means; the key is to have the principle accepted.
Such a considered approach is perhaps less emotionally satisfying than a high-profile penalty on banks or bonuses. I suspect anything short of hanging will not meet public expectations. But bashing bankers detracts from the issue at the heart of the banking crisis: the continuing, dangerous but – usually – profitable behaviour that enjoys implicit protection from the taxpayer. That protection is free for the banks and potentially ruinous for the rest of us. They should pay a proper price for it.
You can read Vince’s article in full here.
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4 Comments
Clearly there is a balance to be struck here. It is in noones interests to see the banking system fail, and there is also a need to ensure that our banking sector should be able to compete with banks elsewhere.
However we need to remove perverse incentives such as excessive pay and bonuses and we need to seperate retail banks from casino banks (which from now on will be allowed to fail without putting the general public at risk) and generally reduce the size of banks which will hopefully have the effect of making sure the financial sector is less likely to bubble up again.
Although Labour are to be preferred to the Tories for saving the banking system and introducing the economic stimulus, it is disappointing that they have not restructured the banks and it is possible the Tories are more committed to doing this.
It leaves the Lib Dems with a hard choice after the next general eletion. The Tories will want to slash an burn on public spending like Thatcher did when she got elected, in the hope that the recession will be out of the way before the following election. This would be a disaster. However can Labour be persuaded to restructure the banking sector in the way Vince outlines?
Not a good choice awaits us.
For goodness sake.
Bankers bonuses are the froth on the top of the banks’ massive profits. Where do these extraordinary profits come from? That is the crux of the matter. If profits reduce, then bonuses will drop accordingly. That does NOT mean arbitrary windfall taxes. It means systemic reform and, above all, it means collecting the public wealth that banks appropriate from all of us by virtue of their state-protected cartel. The answer is as simple as it is Liberal; break down the barriers to entry, open up banking to proper free-market competition and, above all, collect the economic rent that masquerades as “interest” every time a bank creates a debt-based deposit from nothing.
C’mon Vince, your Liberal forebears would be proud.
Bonusses are important because they incentivise dealers to go for show term profits regardless of the consequences.
The problem with “free” markets is that there is a similar problem with short termism, and that has to be tackled by more efective regulation, otherwise the makets will fail again.
This is an excellent policy from Vince, seprating the casino and clearing banks can help prevent another major crisis.
Its not a glamourous or populist polciy, but it is an effecrtive one.