It’s time to call the bankers’ bluff

It’s time to call the bankers’ bluff

http://www.neweconomics.org/blog/entry/its-time-to-call-the-bankers-bluff?&utm_medium=email&utm_source=nefoundation&utm_content=2&utm_campaign=this-week-0503&source=this-week-0503

Photo credit:   geezaweezer

March 1, 2016 // By: Christine Berry

Barclays today announced a fall in profits for 2015, bringing results season for the UK’s big banks to a close.
The bank blamed the squeeze on the £20bn fines raised against them, including the foreign exchange rigging scandal and PPI mis-selling.
Announcing that a further £1.45bn will be paid to customers who were mis-sold PPI, Chairman John Macfarlane suggested the combination of shrinking profits and charges would have a wider knock-on-effect for the UK economy – resulting in reduced lending to small businesses.
This is another example of the City of London using its power and influence over the UK economy to back politicians into a corner, and force them to roll-back financial regulation that goes against their interests.
But big banks have been failing at small business lending since the 2008 crisis and even before, for the simple reason that it's just not part of their business model. Taking the time to get to know which small businesses are creditworthy is just not worth their while when banks can make much easier money lending to other banks or trading derivatives in international markets.
Slow global growth and mega fines for misconduct are symptoms of our broken financial system, not causes. The fact that banks like Barclay's are now trying to hold politicians to ransom by claiming otherwise just goes to show how far they've regained their chutzpah as memories of the crisis fade.
But our politicians must be more prepared to call the City of London’s bluff, to make sure banks serve people, rather than put them at risk.
Despite their role in the last financial crisis, banks continue to threaten to move elsewhere if regulation is designed against their interests. HSBC’s recent threat to relocate outside the UK is only the most recent example of such tactics.
But our analysis shows that even if the banks followed through with their threats to leave, the impact would not be as disastrous as we’re led to believe.
The City’s contribution to UK growth is outweighed by the long-term damage it’s caused with financial instability. They pay less corporation tax than they did before the crisis, and contribute very little to the ‘real economy.’ The majority of investment is fuelling an unsustainable housing boom in the South East of England, while small business lending is already lacking.
In reality, London remains an attractive home for the big banks. Recent concessions made to the City are already rolling back the limited progress made by post-crisis financial reforms.
Our politicians should face up to the real cost of the City of London to our economy. They should look past the overstated contributions of our financial institutions and recognise that, quite simply, the interests of big banks should not come before those of the rest of us.
We recommend that:

• The Bank of England should significantly strengthen the lightweight ring-fencing regime. An urgent clamp down is needed on ring-fenced banks’ economic links with the rest of their banking group. If banks continue seeking to water down and ‘game’ the regulation, full structural separation between retail and investment banking must be reconsidered.
   
• The Financial Policy Committee should consider more active credit guidance policies. More active intervention could stimulate real economy lending and dampen down both mortgage lending and lending to other financial corporations.
   
• The Treasury should urgently review options for addressing the lack of diversity in the UK banking system, and for promoting a more vibrant local stakeholder banking sector. This should include examination of the full range of options for the public’s majority stake in the Royal Bank of Scotland.