A call to break up the banks, split retail and investment banking, and provide a lot more support for small companies....
The New Economics Foundation (NEF) says that the latest Government efforts to revive the economy will not work as the UK's banks have become 'unfit for purpose'.
Don't throw good money after bad
The organisation has urged the Government to rebuild a sound financial sector. Instead of 'throwing good money after bad', NEF suggests the Government should:
de-merge the big banks
separate retail banking from corporate finance and securities dealing
support community finance initiatives and small businesses, who will be the drivers of the recovery. (Small businesses provided 59% of private sector jobs in the UK in 2007).
Banking failures and failed rescue attempt
The report, IOUK: banking failure and how to build a fit financial sector, looks at the behaviour of the UK's banking sector. If finds that the nation's banks have withdrawn from the heart of communities, sidelined their basic business, lost touch with the real needs of their customers and become structurally unable to serve them, it says. While flooding the economy with inappropriate credit they contributed to a financial drought in disadvantaged areas and starved small businesses of the credit they needed to survive.
And the Government's rescue attempts have so far failed. Despite virtual nationalisation and a £37bn bailout of the biggest banks, the Government seems powerless to force banks to lend appropriately.
NEF says that The Enterprise Finance Guarantee scheme which replaced the Small Firms Guarantee Scheme has failed to kickstart lending (despite Lord Mandelson's claims in an announcement slipped out quietly on 20 February in response to media criticism) and is weighted in favour of larger firms.
Yet a "sleeping architecture" of a more robust local financial infrastructure exists in the credit unions, community finance and local enterprise schemes that are working on the frontline of financial exclusion.
The paper includes case studies of viable businesses failed by the banks but supported by this parallel infrastructure. The report's authors say that this sector should be supported and a UK Community Reinvestment Act be brought in to force banks to partner with them.
Comment from the author
Sargon Nissan, Business and Finance Researcher at NEFand co-author of the report, commented:
"The Bank of England has reached a dead end with interest rate cuts and the decision to flood the economy with £75 billion of new money through 'quantitative easing'; is just another form of bail out. The Government is in denial if it thinks we can go back to business as usual; that's what caused the crisis.
"If banks became too big to let fail, how can the answer be to make even fewer banks even bigger and keep channelling all the funds through them? We need to bring banks back to their original function, break them up and return them to a scale where they are in touch with the communities, people and businesses they should have been serving all along."
www.ukba.co.uk
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1 comment:
It looks like the banks might have gotten to a size where they implode in themselves having lost sight of what customers actually need from them. I remember an economics lecture from the early eighties where the total domnance and scale of IBM was the subject matter. 10 years later, it was almost irrelevant as the market fundamentally changed without them even noticing.
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