This Blog is now going to set out its stall to rebuild our financial system. No doubt the IBC will be more sophisticated, but I doubt it will be more fundamental.
The Banks must be broken into distinct and financially separate arms, for what was once banking, but what is High Street or consumer banking in modern terms, and speculation, gambling and betting, which is today’s curious misname for investment banking. There is a third element, which was once called merchant banking; maybe that too will need to stand alone.
The High Street Banks are now too big; there are only five and this is too few for an SME economy (small to medium enterprise), which is what ours is. America is dominated by big corporations. GM, Microsoft, Apple, Boeing and so forth. Giant banks may be good for this, although they retain a web of local banks, even after the crash. We have no local banks, only giants. This will have to change.
Building societies have to be reborn as mutual savings societies, not quasi or actual banks. They are needed for their savings products, especially for the retired, and for their mortgage funds. Properly run, they are immensely strong financially. They have no place for shareholders. Remember the big names like Halifax, Abbey, Alliance and Leicester all became shareholder owned banks and all went bust or had to be rescued on the brink. We need these mutual institutions back again. Their roots are in the community. This is important.
All the institutions concerned with financing the cogs of the economy and enabling the every day financial system to run, will have to be organised and managed to the highest standards of probity and prudence. There will have to be a safety net of last resort. Speculative banking on the other hand, the element which houses within the ranks of its payroll individuals of such genius that it has to pay them millions or they will run away to China, will stand upon their own feet and if things go wrong, down they will be allowed to go hook, line and sinker. No help or bail out. Total loss for shareholders.
These and some other reforms which time and experience will reveal, will put our economy back on a track which can reliably carry the engine of national recovery. It is worth pointing out that this will not be on a bed of borrowing. We became addicted to borrowing for everything. That is the bad way and that era has passed. The lending figures confirm this. For once I agree with the banks. The politicians are wrong. Lending is down because the demand is not there. Faced with the risks and true costs of borrowing people and business would rather manage without. Far from being a sign of stagnation, it is the seed of a sound recovery. We must nurture it well.