Saturday, April 30, 2011

We must call the bluff of the big, bad banks

It would be insane not to change the structure of banking, because it’s doomed to fail again, writes Jeff Randall.

When asked by a judge why he persisted in robbing banks, the serial offender replied: “Because that’s where the money is.”

For us taxpayers, this observation is now doubly true. The banks have captured our money twice over: as cash in their vaults and investments in their shares. We own all of Northern Rock, most of Royal Bank of Scotland and nearly half of Lloyds Banking Group. We rescued them – and in so doing became their prisoners.
The scale of our discomfort will be set out on Monday when the Independent Commission on Banking, chaired by Sir John Vickers, delivers an interim report. It will be embroidered with arcane references to “functional subsidiarisation” and “macro-prudential regulation”. But cut through the gobbledegook and there is a simple question: can our banking system be reformed to make customers’ deposits more secure, without destroying the value of the state’s enormous shareholdings?
Would new rules to separate the racier aspects of banking – so-called casino operations – from traditional savings-and-loans business result in a diminution of banks’ profitability and, as a result, prompt a flight of institutions from these shores?
Top bankers want us to believe the answer is yes. The global economy cannot function without big banks, they say: gigantism provides synergies, efficiencies and benefits of scale. What a hoot. Tell that to the shareholders of Citigroup, a banking behemoth, which all but disappeared up its own balance sheet in 2008, having had a wild (losing) punt on sub-prime mortgages. Telegraph article here

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