The role of banks - Printable Version

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The role of banks - ReadingLib - 11-22-2015

An area of policy which I haven't seen a significant amount of comment on in our party is our relationship, both economically and personal, with the banking sector.

Banks have been transformed in recent decades, and after the crash of 2007-08 this is now belatedly being seen as not having been for the better. Embolden banks knowing they were 'Too Big to Fail' indulged in the much maligned casino banking, venturing into area's of complex trading that required the employment of physicists and mathematicians.

Funding for business both big and small, has taken on a secondary importance, the later finding is increasingly difficult to find vital funding. This is even when central government has directed banks to dispense state assistance such as the Funding for Lending(FfL)scheme.

A recent article in The Economist suggested that banks in fact now do over 60% of their business in relation to mortgages, and that business banking is now a stagnant area of activity. Large business have been driven into the bond markets, which by their very nature are only suited to the largest corporate borrows. and completed unsuited for small businesses.

In fact banks have seemingly adopted a cut off our noses to spit our faces mentality towards regulators and customers. Told to bolster reserves to mitigate future shocks, they have almost deliberately cut lending and closed off lines of credit to struggling businesses knowing full well that by doing so, they would choke off the economic activity we need to expand our post-recession economy.

What we need is a fresh appreciation of the banking sectors rule in our society. I would assert that banks should function in their simplest form as the providers of finance and expertise to fund the creation of new business, stimulate economic activity, creating prosperity and employment.

To return to this simpler model will mean a major change of mind set not just for bankers, but also politicians, businesses and ordinary customers. Banks will no-longer be allowed to treat customers, both business and personal, solely as a source of profits, and must be whiling to re-invest in the wider economy and society in general and on a longer time-scale.

As Liberals we wish to intervene as seldom as possible in economic activity, but the banking sector will need to be guided into a more responsible mode of operations. The financial industry in general has for decades been lorded as the high alter of Mammon, where greed was good, and this mindset is no-longer socially acceptable.

One alternative option for business funding has been the creation of a national investment bank. Indeed we do have British business bank PLC, a state-owned economic development bank established by the Coalition government as originally announced in 2012.This has now received over 1.25billion pounds of funding to assist the small business sector with funds and expertise.

As much as this move must be applauded, it can also be seen as a realisation that conventional banks are no-longer able or willing to help business, when they simply have to, whether they want to or not.

As we have already painfully seen a banking sector which is not receptive to the wider needs of the economy has been detrimental to the health of this country, long-term economic prosperity and a burden on the tax payer.