TIME TO BREAK UP THE BANKS

Ahead of the Second Reading of the Financial Services (Banking Reform) Bill, Plaid Cymru has renewed the call for full legal separation of retail and investment functions of banks, to truly ensure that banks can never again game the system and gamble with ordinary depositors' money.

Plaid Cymru’s Treasury spokesperson Jonathan Edwards MP said:

"The Government's plan to ‘electrify’ the ring-fencing of the big banks’ commercial and investment functions, despite being a step in the right direction, does not go far enough.   

“A full legal separation of these functions is only way to ensure that banks behave and do not have to be bailed out again. Even though everyone is now focused on the recovery, the mess of the past has still not been sorted out and is proving to be a major economic drag.

"We know that bankers will try and game the system, history has proved this. The only way to truly protect against the banks being bailed out again – at massive cost to the taxpayer – is for full legal separation of retail and investment functions.  This is the only way to end moral hazard and to stop casino bankers using public money as a safety net.

"Despite the seemingly tough talk of ‘electrifying’ the ring-fencing of the retail and investment functions of banks – the measure still fails to break up the banks. All that the Government would do is reserve the right to break up the banks. Instead, George Osborne should be actually breaking them up.

"Breaking up the banks is what Plaid Cymru has argued for since the banking crisis and financial crisis began in 2008.

"Labour, meanwhile, presided over the financial crash of 2008 having been slavish adherents to light touch regulation and in awe of bankers and the City of London. Ed Balls has said that 'the jury is still out' and has only talked of demanding a 'reserve power' for separation of the banks, mirroring Osborne’s position. [1] 

“Clearly Labour are not committed to separating the banks. Both Tories and Labour are addicted to high finance.

"After the scandals of PPI mis-selling, LIBOR, countless bankers’ bonuses furores, the financial crash of 2008, the massive government bail-outs, and the economic crisis that we are still living through today – active full legal separation of banks’ retail and investment functions is what is required. My fear is that the financial sector will see Osborne's reserved right to break up the banks as an empty threat.

"Those that say that banks would relocate to other countries if full legal separation were to happen are wrong. Where else would bail them out? Banks must be made to serve the real economy instead of being too big to fail. The producing economies of the British State, such as the Welsh economy, are bled dry by the sectoral dominance of the banking sector, and the regional dominance of London and the South East of England.

"Rather than being the goose that lays the golden egg, the banks, for far too long, have held a golden gun to governments and ordinary working people.  This Bill is the one opportunity policy makers will have to protect the real economy from the excesses of banks in the future.  Otherwise it's only a matter of time before we will be asked to bail the bankers out again."

FROM THE LAND OF CHEESE AND CHOCOLATE…

George Osborne and the Con Dems are prettymuch on their own when it comes to standing up for the bankers and their bonuses. Swiss voters have overwhelmingly voted in a referendum to impose some of the world's toughest controls on executive pay. Almost 68% of the Swiss voters backed plans to give shareholders a veto on compensation and ban big payouts for new and departing managers.

More popular than the Bankers...

While understandably some Business groups argued the proposals would damage Swiss competitiveness ordinary Swiss voters were more concerned with the growing economic divide in the country. The Swiss vote came a few days after the European Union agreed new measures to cap bankers bonuses. Referendum results showed that all 26 Swiss cantons backed the proposals, with 1.6 million voters voting "Yes" with 762,000 voting “NO”.

Multibillion dollar losses by Swiss banking giant UBS (which were covered by the Swiss government), and thousands of redundancies at pharmaceutical company Novartis, have caused a wave of anger in Switzerland as high salaries and bonuses for managers had remained unchanged. The new measures  give Switzerland some of the world's strictest corporate rules, with Shareholders having a veto on salaries, golden handshakes will be forbidden, and managers of companies who flout the rules may  face prison (now there’s a nice idea!).

The so called "fat cat initiative" will be written into the Swiss constitution and apply to all Swiss companies listed on Switzerland's stock exchange. Last week the European Union agreed a deal which means that bankers bonuses will be capped at a year's salary, but can rise to two year's pay but only if shareholders approve. The Con Dem Government has argued the EU bonus rules will drive away talent and restrict growth in the financial sector.

Remember this...

"It is wholly untenable to have millions of people making sacrifices in their living standards only to see the banks getting away scot-free." 

Nick Clegg, Deputy Prime Minister, 17 December 2010 

and also this...

"Bankers have to realise that the British public helped to bail out the banks and it is very galling when they see bankers pay themselves unjustified bonuses." 

David Cameron, Prime Minister, 17 December 2010

The former New Labour government made much of its light (more like non-existent) financial regulatory touch, well at least until the wheels came spectacularly off the wagon. The Con Dem's have effectively refused to take any action over banking regulation until after the next Westminster general election. Interestingly enough before the government limos arrived (and they were in government) before the last Westminster election Vince Cable (currently the Business Secretary) and George Osborne (currently Chancellor) were at it hammer and tongs as to who was going to be toughest when it came to regulating and controlling the worst excesses of the banks.

Personally I think that The Con Dem UK Government (and their formerly New Labour predecessors) have missed an opportunity to break up and 'privatise' the larger 'publicly owned' financial institutions, they should have sold the shares on the open market with specific quotas on how many shares any one institution can own. From where many people are sat these bloated overgrown banking organisations appear to be a serious block on the ‘free market’ and too busy lining their own pockets. George Osborne and the Tories appear to have reluctantly gone along with the much publicly stated need to regulate the more unsavoury aspects of the banking sector, but, whether they will actually and eventually do anything is open to question.

Perhaps they ought to come clean and simply declare an interest as regulating the banks in the City may impinge on the acquisition of future lucrative directorships in City banks unless they have them already that is? One question that may also remain unanswered is whether or not they will do anything about tax evasion, tax avoidance and the regulation tax havens? It's odd really because the Con Dem's have displayed such zeal in their efforts to chase people on benefits.