Commission on Banking Standards: good progress but more is needed

Photo credit:   sonewfangled

June 19, 2013 // By: Lydia Prieg

Banks are back in the news today with the final report from Parliament’s Commission on Banking Standards. As ever the media has focused its headlines on whether senior bankers will be thrown into jail, but that won’t tackle the real problems plaguing our banking system.

  1. Holding senior bank official to account is important for justice, but it is unlikely to cause a significant shift in the behaviour of our banks. At the height of the boom, most bankers were not deliberately engaging in wrong-doing, they simply suffered from group-think.

    The Commission’s emphasis on reforming the governance of banks, and creating better functioning and more diverse banking markets are more important than jailing bankers.. Our economy is dominated by a handful of giant shareholder owned banks. To achieve the diverse customer focused banking markets the Commission seeks, it is crucial to have many other types of banks in the economy, including public banks, mutuals and regional banks.
     
  2. Reforming bonuses is a good idea but only one piece of the puzzle. Bonuses are a symptom of the sickness in our financial system but not the cause. The underlying problem is banks that are allowed to make excessive profits through lacklustre competition, speculation, tax avoidance and mis-selling.
     
  3. The commission is right to push the Government to be more creative with our shares in RBS. Our stake in the Royal Bank of Scotland presents a once-in-a-lifetime opportunity to reform the banking landscape in the UK.

However, the commission has fallen into the trap of assuming that RBS should definitely be returned to the private sector. In the long-term interests of the country, not the short-term interests of politics, the Government must investigate more options, like turning the retail bank into a network of publicly-owned local banks similar to those found in Germany, Switzerland, Austria, and Norway.

Today’s report is good progress but all depends on full implementation and further restructuring of the industry. Five years on from the financial crisis Britain’s banking system remains unfit for purpose. All eyes will be on the Chancellor tonight to see if his Mansion House speech takes notice.

Issues

Banking & Finance

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