Why We Can’t Let Banks Off The Hook As Osborne Says
We’ve heard a lot from George Osborne last week on the dangers of ‘complacency’ about the UK’s resilience to global economic shocks. But the real complacency we should be worrying about is the return to business as usual in our banking sector.
In a speech in Cardiff, the Chancellor warned that Britain faced a “dangerous cocktail of threats” in 2016, and that calls for more public investment amounted to “creeping complacency” about these threats.
It’s interesting to note the change of tone from his previously upbeat assessments of our economic prospects. As we argued on the NEF blog yesterday, the government’s economic policies are in fact stoking up the conditions for another crash: namely a housing bubble and continued over-dependence on debt-fuelled consumer spending.
But the timing is also ironic. In the very same Radio 4 interview which trailed his speech, Osborne was forced to defend the decision of City watchdog the Financial Conduct Authority (FCA) to drop an inquiry into banking culture. This is just the latest in a string of signals that the post-crisis era of talking tough on banks is well and truly over.
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In recent weeks the FCA has also dropped an investigation into incentives for staff selling financial products, as well as deciding not to take action against HSBC over tax avoidance.
For Osborne to claim that he has nothing to do with these developments is deeply disingenuous: last year he was personally linked to the sacking of Martin Wheatley, the former head of the FCA, who was widely seen as being tough on the banks.
In his Mansion House speech last July, he set the tone for the new parliament by talking about a “new settlement” with the City. Apparently, sacking tough regulators and sweeping misconduct under the carpet is what that “new settlement” looks like.
Osborne wants us to believe that the problems which led to the 2008 banking crisis have been fixed – perhaps because this is the only way he can hope to justify his new ‘hug a banker’ attitude. In his Radio 4 interview, he pointed to the Parliamentary Commission on Banking Standards as evidence that we didn’t need another inquiry into banking culture.
This shows an impressive level of chutzpah given that Osborne is currently pushing through legislation to scrap one of its key recommendations to ensure senior banking managers could be held to account for misconduct.
He boasted that the government had split retail from investment banking: but again, just months ago the regulator announced plans to water down these rules in response to industry lobbying.
The British Bankers’ Association even feels confident enough to demand – in an astonishing report which makes no reference to their role in the biggest financial crisis since the 1920s – that the UK’s “competitiveness” as an international investment banking hub must be protected at almost any cost, threatening that big banks could leave unless they win further concessions on tax and regulation.
If recent policies are anything to go by, there is every sign that they will get a sympathetic hearing.
And yet, as we argued last year with our Financial System Resilience Index, these activities are precisely what makes us so vulnerable to the kind of global economic threats Osborne warned against yesterday.
We still have the most bloated, complex, risky and top-heavy banking system in the developed world – as well as one of the least focussed on supporting the real economy. Any debate about economic complacency should start here.
By NEF – Economics as if people and the planet mattered