Campaign news

More Banking Mayhem on the Way?

3rd February 2016

More Banking Mayhem on the Way?

By Mick Brooks.

Reprinted from the February 2016 issue of Labour Briefing,
magazine of the LRC

Martin Wheatley, head of the Financial Conduct Authority, was summarily dismissed from his post in July. His crime? He was trying to do his job of effectively regulating the banks. George Osborne and the Treasury are facing a deluge of lobbying from the financial sector, and they have caved in completely.
Financial mismanagement matters. According to Andy Haldane, Chief Economist at the Bank of England, the costs of the crisis triggered by the banks could add up to £7.4trn in lost output. Currently we collectively produce about £1.75trn in a year, so the banks have cost us more than four years production – lost forever.

Also the FCA has now abandoned a proposed review of the banking sector’s catastrophic culture. The banks have got away with it. The ‘Financial Times’ has confirmed that a bigwig from the Bank of England presided over the retreat from the inquiry.

Osborne says it’s time to abandon banker bashing. What banker bashing? Iceland, with a population of a little over 300,000, has banged up 26 bankers for malfeasance during the 2007-8 Great Recession. In the UK just a few small fry involved in the London Interbank Offered Rate fiddle have recently been sent to prison. There is no doubt that fixing LIBOR and foreign exchange rate rigging were criminal frauds, but the authorities seem unable or unwilling to act against the people most responsible.
New rules have been drafted so that senior bankers would have to account for their failings in the event of another banking crash. Now the burden of proof has been reversed, so the authorities will have to positively prove bankers’ fault. So far the banking magnates have successfully concealed their criminal irresponsibility for the crisis amid the thickets of financial complexity. Their excuse seems to be that they were too stupid to understand what was going on!
The Green Report prepared by City regulators nails the directors and the board at HBOS for the near-collapse of the bank in 2008 and declares that, “the people most culpable were let off.” HSBC has recently been reported as helping rich clients evade tax – which is a criminal offence. No action has followed in either case so far.

The ‘elephant deal’ negotiated by Barclays shows how the banks support criminality instead of lending their money to build up British industry and British jobs. The bank did not run checks on ‘politically exposed persons’ (in other words crooks) who wanted to transfer £1.88bn in a hurry. The crooks insisted on strict anonymity from the bank. Barclays at once agreed.

Where had the money come from? “Landholdings, real estate and business and commercial activities,” replied the clients. The FCA noted that this meaningless waffle, “failed to minimise the risk that it may be used to facilitate financial crime.” We still don’t know who these guys are. Barclays has maintained its omerta. The FCA eventually fined Barclays £72m. But that’s peanuts!

Fines imposed by the FCA on the banks overall fell by 40% in 2015. And the seven City banks got away with paying just £21m corporation tax in 2014 on revenues of £12bn and UK profits of £3,6bn.

Britain is particularly vulnerable to a crisis of capitalism affecting the banking sector. The assets controlled by finance capital are bloated up to four time our GDP. Before the crisis the banks were ratcheting up the risks to the rest of us in search of rewards for themselves. In 2007-8 they were lending out 50 times as much as they held in assets. That meant that only 2% of their loans had to go bad before they were in deep water.

It was belatedly recognised that the banks were gambling with our livelihoods and with other people’s money. A more prudential approach was adopted after the crash, and has been progressively abandoned under the Tories. Finance capital is lobbying hard at measures in the Banking Reform Act, passed by Parliament in 2013. At present the capital requirement of the banks stands at 33-1, so only 3% of loans need fail before we’re on the boom-slump helter skelter again.
Osborne’s counter-reforms and the restoration of the ‘light touch’ regulation are building up the instability in the financial sector that contributed to the onset of the Great Recession. It could all happen again. Vince Cable, former Business Secretary now out of office, claims the establishment is turning “a blind eye to abuses in the banking system.”

Why is Osborne doing it? Some may suggest it is because the Tories are dependent on funds from high finance. The Bureau of Investigative Journalism found that half of the Conservative Party’s donations came from sinister bodies such as hedge funds. £19m flowed into their coffers from wealthy fund managers before the last general election. This seems to have been money well spent. In this view the Tories are institutionally corrupt.
You may very well think that. I could not possibly comment.