Britain’s broken relationship with banks – we need a fresh start
Joe Wright, 27 November 2013
Pitchforks at the ready: the banks are at it again. This week it emerged RBS (81% tax payer-owned) will be investigated by the Serious Fraud Office over allegations their Global Restructuring Group – the team tasked with ‘supporting’ businesses in financial trouble – forced hundreds of companies out of business. The accusation is that rather than attempt to turn businesses around the group acted more as bailiffs seeking to extract maximum returns by, in many cases, forcing companies to sell their property at cheap rates to RBS’ own land bank.
This could be down to sheer self-serving ‘profiteering’, but like most things it is not all that simple. There is something to be said for the fact we are continually telling banks to sure up their books, increase capital reserves and root out riskier lending, while simultaneously berating them for not solving the money troubles of small and medium businesses, which are riskier to lend to and produce small returns (unlike mortgages). The two messages are incompatible; we wish to bite the hand that feeds while asking for more food.
Such is the bizarre nature of the UK’s relationship with banking that today the Chancellor has asked the finance policy committee (FPC) to examine if it should be given new powers to set banks’ leverage ratios. Yesterday he announced new Chinese banks (mostly state-owned) based in the UK will be given free licence to do as they please – something China would never allow British banks to do – all because the UK is in desperate need of investment.
Naturally big banks are not particularly deserved of sympathy – their hubris created a financial crisis the UK is still suffering from. But they are in no place to solve the problems facing British businesses, no matter how much we ‘bash’ them – RBS least of all. The problem the UK has with financing business is longstanding, particularly in the north. The trend of turning to foreign investment whenever there is a shortfall in funding is not a marker of how attractive we are to investors, but how poor we are at funding businesses ourselves.
As Civitas has advocated for some time, instead of asking big banks to perform miracles the UK needs a new set of regional banks, divorced from the high-stakes world of international banking (instead of pretending to be as the Co-op Bank, now owned by US hedge funds, seems to have been) and devoted to the needs of one region. Along with the latest policy of capping payday lenders’ interest rates, the government is currently only ameliorating financial sector problems that are, in actuality, systemic.