Young Fabian members of the Future of Finance Network, alongside guest experts Rachel Reeves MP, Lydia Prieg of the New Economics Foundation, and Melora Jezierska of the Charity Finance Group, gathered at the House of Commons this month to answer the biggest questions posed by the incoming reforms.
What can be done to protect depositors’ money from being placed as bets in ‘casino’ investment banks? Which policies will serve to safeguard London’s status as a world financial centre and defend the wider British economy from bank failure? How do we make banks servants of society instead of society servants of the banks?
The answers are threefold. First, new regulation has to be calibrated to maximise the public good. Ringfencing the high-street arms of banks from their risk taking investment operations is sound in principle. However, the rules need to ensure that the protected element has enough cash in reserve to act as a buffer in the event of a crisis. It is also important that policy recognises the rights of certain groups that warrant protection to access the ringfenced business- like charities and small businesses.
Second of all, we need to build a banking system founded on social values. Banking relies on trust, on mutual respect between people and institutions, and cooperation. Neo-liberalism birthed a different collection of values- market values- that stripped these qualities from the financial sector and divorced the purpose of banking from the social good.
As a result, the industry was swallowed up by a small group of corporate giants and our banks destroyed more economic value than they created. In the post-crisis age, banks need to be more responsive to the needs of communities. We need to cultivate new ‘challenger banks’ to boost competition in the sector, encourage the growth of different types of financial institutions like credit unions and mutuals, and compel a devolution of power away from corporate multinationals and into smaller, local institutions.
Thirdly and finally, there needs to be a change of culture within the financial sector. This makes demands of society as well as banks. A powerful financial policing authority, established by the state, could patrol the sector for instances of white collar crime and corporate misconduct. Incentive structures that teach salesman to treat clients as cash cows can be ripped up and replaced.
However, citizens also need to take control of their own financial lives so that they can be more selective about where they put their money. Children should be taught about the different ways they can manage their money at school, while the government could sponsor a massive publicity drive to raise awareness of the various institutions apart from banks they can use to achieve financial peace of mind.
Changing the way banks operate and control their assets will be expensive. Estimates based on the Vickers Report suggest the economy will suffer by £600 million to £1.4 billion a year for the next 30 years. However, it’s important to remember that in 2007-2009 the crisis cost the UK £140 billion. If a transformation doesn’t occur, who would bet against an even more destructive crisis engulfing the world fifty years from now?
This is the question progressives ask of an industry reluctant to change its ways. Fabians, Labour members, and socialists must continue to ask it if reform is to be saved from becoming stuck in the mud.
Louie Woodall is Assistant Editor of the Young Fabians Blog