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Banking – Changes – Big Changes

I saw this article on the New Economics Foundation Website and thought it made some real sense. The banks seem to think they are not only above the law but also above control. The idea that their function should be split 3 ways , personal customers, business banking and securities dealing, makes such common sense and give control back to the people that use their services. That a bank should be for profit for me runs against the grain – there is something just not quite right. That brings me onto the whole subject on money – is it real or is it a myth.

If we all went to the Bank of England and asked to exchange a £10 note for £10 in cash – we’d get a big surprise. The statement on bank notes ” I promise to pay the bearer on demand…” – has gone. So what is the currency of money – does it even exist? If you like philosophy just google the phrase ‘does money exist’ and see what comes up.

I’m very interested in the concept of micro finance as practised by several organisations in Africa – I wonder if that could be a model for the western countries so devastated by the banking system collapse.

Break up the banks to restore lending and revive the economy from the bottom up, says think tank

Economic rescue efforts – including quantitative easing – will not work until the fundamental problem that Britain’s banks have become “unfit for purpose” is addressed, says nef (the new economics foundation).

In a report published today, Tuesday 10 March 2009, – the day the British Bankers Association chief is to answer to a parliamentary investigation of banking supervision and regulation¹ – nef argues that the shift in the shape and business model of banks over the last generation helped both cause and perpetuate the present financial crisis.

It calls for a radical rethink of Government strategy, to rebuild a financial sector that is fit for purpose.

Instead of throwing good money after bad, 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 2007.²

IOUK: banking failure and how to build a fit financial sector, analyses the behaviour of the UK banking sector. Banks have withdrawn from the heart of communities, sidelined their basic business, lost touch with the real needs of their customers and become structurally unable to serve them,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. 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 criticism³) 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.⁴ This sector should be supported and a UK Community Reinvestment Act be brought in to force banks to partner with them.

“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 “quantative 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.” said Sargon Nissan, Business and Finance Researcher at nef and co-author of the report.

Tags: Bank Of England, banking, Banking Supervision, Banking System, banks, British Bankers Association, Business, Business Banking, Financial Crisis, Financial Sector, Foundation Website, Fundamental Problem, Google, Government Strategy, hope, Last Generation, micro finance, New Economics Foundation, Personal Customers, Rescue Efforts, Retail Banking, Rethink, System Collapse, Western Countries