Thursday, 9 July 2015

Voldemort returns to banking

The sacking of Anthony Jenkins as the Barclays CEO is a loss. It is also a commentary on his own belief that he was changing the culture of banking. As it turns out, he wasn’t - though he certainly tried. Clearly his board didn't really want him to.

It also puts into perspective the failure of the political system to shape an effective banking system that is capable of supporting the real economy. This is, it seems to me, one of the big failures of the coalition years.

Because the political elite– and this involves all the parties at Westminster – have managed to combine precisely the wrong kind of regulation with a kind of lazy idea that anything the market can’t do immediately somehow isn’t worth doing.

It is at the same time the wrong deregulation and the wrong regulation. The combination means that the economy will not succeed as fast as it should, and will be that much more vulnerable than other economies when the time comes – and the crisis is coming, whether it begins in Greece or China or somewhere else.

The wrong deregulation is a constant theme of this blog when it comes to banking. Every other nation in Europe has a network of local and community bank designed to look after local business needs.

We don’t.

Of course the P2P alternatives are growing fast, but they won’t look after the slow small companies, the backbone of the local economy. Nor will they provide bank accounts or places to put their takings at the end of the day.

Nor will they create the money in the form of loans. A world without bank loans will not have the means to create money, unless the Bank of England does – and they show no signs of expanding the ludicrously useless quantitative easing programme.

Of course the challenger banks will help too, but they are mainly not providing current accounts – and when they do, it is for wealthier areas.

That is the great failure of the coalition. Vince Cable’s British Business Bank will help local lending, but it provides no local infrastructure. It doesn’t provide the missing information which the big, centralised banks lack about potential loans.

Worse, the shift in yesterday's budget - from a levy on banking size to a surtax on banking profits - just excludes challengers.

Then there is the failure of regulation. The new Basel regulations, and the whole drift of the regulators here as well, has been the same – to insist on yet more safety margins. To require more capital held to cover small business loans. To stress test constantly.

To repeat, in a small way, the destructive announcement by the European Central Bank about Greece that – far from bailing them out – they would require more capital underpinning.

The result of this regulation will be to make small business lending virtually impossible, just as it will make small scale banking virtually impossible.

The more they demand in regulation, the narrower and more useless the banks will become. Until they are safe as rocks, but they are unable to carry out their basic functions.

So the news that Anthony Jenkins has been sacked by Barclays is double trouble. They have got rid of someone with a different vision and fallen back on the old useless model of investment banking, slaving away in the innards of the Great Economic Machine that funnels money to the very rich.

I cast no aspersions on the chairman who has taken Jenkins’ place, but note that the rule of Voldemort is clearly returning to the banking system. Mordor is rising again.

And in a way, you can’t really blame them. The regulator has been busy making effective, useful domestic banking virtually impossible. And after all that, the big banks are still too big to be allowed to fail - though there are of course new regulations that are said to be designed to prevent them from doing so.

Ironically, neither the bad regulation nor bad de-regulation are building a banking market - quite the reverse. Neither are doing anything to bring more competition.

What they should be doing is making it easier to start small or experimental banks, and copying the speedy American procedure to wind them up over the weekend if they fail. And of course getting the big banks to fund and mentor a new community banking infrastructure - starting with reshaping RBS (of which more later).

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