The debate contained a fair amount of vilification of banks and bankers, the charge sheet ascribing the global crisis exclusively to the banking industry. Five years on there appears to be no diminution in the appetite to blame bankers for any and every issue under the sun.
John Mann MP managed to bring the Crown Dependencies into his speech alleging all kinds of dark doings, referring to a bulging file of evidence, but producing none to justify his extravagant claims.
No mention of the role of governments around the world in putting pressure on to keep interest rates low, to safeguard employment and to lift stock and house prices, creating asset bubbles. No mention of governments pursuing debt fuelled growth, leading to the UK borrowing more than it receives in income, year after year, long before the banking crisis emerged.
No mention too of overt political pressure on financial inclusion in banking, encouraging universal access to banking services including for those who could not really manage or afford them.
Leverage and the ‘greed’ fuelled over extension of banks lending books featured, but little on the rule books which sanctioned the growth, extending to over 6,000 pages, and a supervisory system that failed to detect a systemic dependence on wholesale funding; the fundamental cause of the bank failures in the UK.
Proposals on nationalisation, bond for equity swaps, fines, bonus claw backs, and criminal charges were all advanced; indeed much comment on everything but the structural reforms proposed in the bill.
Constructive and insightful commentary came from the Banking Commission members themselves particularly John Thurso and Mark Garnier with comprehensive overviews, Andrea Leadsom on account switching, and Steve Barclay on individual accountability.
What was missing though was what is needed to ensure a recovery in banking leading to a recovery in support for the real economy. The part nationalised banks have the ball and chain of constant condemnation, with calls for full State ownership. Given they are all still in the recovery ward this would be taking onto the already precarious government balance sheet their bad debts and liabilities.
The main drag on the restoration of part State owned banks has been the constant speculation over their future, impeding a recovery in share prices and a profitable government exit.
The fundamental problems with getting banks to do what politicians would like them to, that is lend to small business were not done justice.
Banks are not lending enough for two reasons.
The first is that customer demand is subdued. Of course examples of that worthy business starved of the cash it needs, can always be served up, but the reality is most businesses do not have the confidence to borrow to invest, because their customers don’t have the confidence to buy.
The second reason is that widespread calls for banks to hold more capital to guard against failure continue to come strong and loud from every quarter. If more capital has to be held, and leverage ratios are to be reduced, a bank can respond in one of two ways. Raise more capital (usually through more equity) or shrink their balance sheet. In a recessionary environment the latter is much easier to do than the former. The consequence is a lending squeeze.
It can reasonably be argued that banks could hold more capital, they will be less risky, but this will make them less profitable, employ fewer people, transfer mobile operations overseas, and pay less tax. I don’t think they are the outcomes the honourable members were arguing for in the debate.
The problem with the ‘Politification’ of banks is that they are being asked to deliver multiple and conflicting objectives, whilst being pilloried and flagellated every step of the way. Small wonder they are making slow progress.
An industry which leads the world in banking expertise, employs 1 million people and contributes with financial and professional services £64bn in net export earnings, more than all other industries combined, needs to be healthy, functioning and supported for the good of the United Kingdom.
Banking has a lot to repent of, but if it can never be recovered, there will be no recovery.