This disparaging trend was highlighted again in an FT series entitled “Capitalism in Crisis”; featuring alongside other economic concerns for 2012 such as debt and demographics – a disparity that exists in UK FTSE100 companies and most notably in financial services up until 2008/9. Issues like these become political fair game when enough people begin to notice, politician’s start to make conciliatory noises to calm or stoke anxieties as they arise depending on whether they are in Government or in opposition.
The recent UK Independent Commission on Banking – chaired by Sir John Vickers – proposes regulation of the banking industry. This covers many of the issues exposed by the financial crisis from 2007/8 onwards and explains how to deal with them. Although changes have already been taken and procedures put in operation since 2008 to curb excessive bonus or incentive schemes, there is – backed up by many headline reports on television and newspapers – still a lot to be properly rectified. For one, bonuses are still being paid to employees of banks which have received Government assistance in many countries, including the UK and USA. The issue of what is socially useful and what is purely esoteric speculation was aired by Lord Turner, former FSA chairman – he suggested that high risk products should only be played with by those who are willing to fully bear their loses by themselves. I believe this point is valid and refers to the separation of bank activities. However, giant universal banks are still very much to the fore, thus this risk of too big to fail remains.
In the UK, a careful regulatory balance is required to maintain London as a world class financial services centre. The Government requires its taxes as the population wants their pension promises and services paid for somehow. Financial services, especially FX and OTC derivatives including insurance, law, accountancy and consultancy contribute hugely to UK net exports and employment – not only in London but elsewhere in the UK too. A manufacturing renaissance from current GDP levels is desirable but will take time.
Whether this will remove protesting tents from squares and parks in numerous financial centres, or preferably reinstate a measure of fair play and chance of prosperity is yet to be seen. A proper address of the reasonable and understandable critism from the public on the culture and behaviour in the banking industry before – and during – the banking crisis is needed. The wider financial services industry, namely the trustees and managers of pension and insurance funds, the Government or their agencies (which control or can influence most financial institutions) need to ensure that the changes made will remain. This should provide a vibrant yet accountable part of the UK’s economy without explicit bail out guarantees, which irks the general public. If this doesn’t occur then there will be trouble ahead in the form of social unrest and I imagine it will come hand in hand with scenes last fully experienced in the 1980s.
Should Lloyds and RBS remain in public ownnership? Or should they remain with a sizable Government stake? This is worthy of more consideration, as the role they could play in shaping the habits and character of a new-look UK plc are extremely significant – more on this later.
*Source: Economic Policy Institute