Banking Reform Proposals Don’t Go Far Enough

Last week saw the Independent Commission on Banking Reform publish its interim recommendations. The Commission was set up by the new UK Government following the collapse of the financial system which has led to the deepest and longest lasting recession since the Great Depression.

In particular the Commission has been tasked with ensuring that public money is never again used to bankroll speculative behaviour by investment banks. Readers will be aware that the last Labour UK Government pumped in £1.3 trillion in loans, grants, and guarantees of our money to keep the Banks afloat. This sum equates to 100% of the British states annual economic output – and the rest of us will be paying for years in increased taxation, reduced public services and economic wellbeing.

There is little disagreement in relation to the causes of the financial crash. Years of light touch regulation endorsed by both Tory and Labour UK Governments led to an over reliance on the financial sector in terms of the make up of the UK economy, as well as the creation of super banks combining everyday retail activity and casino banking where speculators gamble money on the markets in search of profit. Both the Tories and Labour were completely in awe of the Square Miles power, mostly because they were financed by super rich bankers. Building Societies which operated on a not for profit model were relentlessly privatised.

When the crash came the public were left subsiding speculative behaviour of casino bankers and essentially nationalising the careless ‘investment’ choices of these super rich individuals.

This is not a new problem. In response to the Great Depression in the 1930s, the US Government passed the Glass-Steagall Act in 1933 which separated retail and investment banking. It was the repeal of this act which left the public exposed to the financial meltdown of 2007-10.

I was therefore very disappointed that the Commission didn’t recommend a return to separation and instead offered some opaque proposals of so called firewalls. The City on the other hand must be delighted. These proposals will mean ‘business as usual’ for the economic elite despite the years of austerity ordinary working people now face.

We shouldn’t really be surprised, with both the Conservative and Labour parties in the pockets of investment bankers – the Commission was always unlikely to recommend the sort of radical policies needed to ensure that speculative activity is not guaranteed by public money.

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