The great unanswered question of the banking crisis

The problems that banks are causing to economies around the world are continuing and we shall hear more of them as time goes by. The latest news is that regulatory authorities have fined UBS one billion US dollars for manipulating LIBOR rates. Other banks have already been fined and more banks will be fined in future. Using a fine as a means of punishing a corporation for what is clearly criminal behaviour is a soft option. However the regulatory authorities and prosecutors have little choice.

They cannot close the banks down, because that would inflict instant economic damage. If a lawyer behaved in the way the banks have behaved the lawyer would lose the right to practice law. That would inconvenience a few clients, but no lasting damage would be done. If you apply the same logic and action to banks you would cause grave damage to millions of people who have deposited their savings with banks and millions of businesses you need to use banks. You would also make the problems that banks inflict on the public worse because there would be fewer banks which would take up the business, making the banks even more powerful than they are.

The solution is to break up the size of banks. Banks like Barclays, RBS, Bank of Scotland, UBS, Lloyds TSB are simply too big for our own good. We know that they have failed once, and have become insolvent; governments have papered over the cracks of insolvency, but that insolvency is still there. Fining them for criminal behaviour means that ultimately the ordinary customer pays the fine. The highly paid officials and traders simply carry on as before unpunished. The auditors who audited accounts without understanding the risks that the banks were taking in complicated trades have gone unpunished. Those traders, directs and auditors have not even been fined; they enjoy their ill-gotten gains in great luxury while the people whose money they stole find themselves in poorer economic plight.

The solution is to limit the size of banks. It is impossible to control and regulate a huge bank; if you break the bank up into ten smaller businesses the regulators do have a chance of regulating the smaller business. You would need to then have laws to prevent banks gobbling up their competitors. It is not rocket science, but there seems to be fear amongst politicians who are frightened of offending the money men and enacting laws which to the ordinary member of the public seem obvious. The banks must see this coming, but are fighting a rear-guard action of delay. We cannot delay; we must act quickly to break up the banks.

One feeling that I come across when talking to people about banks is an answered question: why haven’t the bankers been punished if they have in effect stolen money? Why haven’t the government taken their money away?

It is a good question by remains the great unanswered question of the banking crisis, which is rapidly dragging the economy of the developed world into the dustbin.

Filed under: climate change Tagged: bank audits, bank regulation, bank size, banking, breaking up the banks, business, criminal behaviour, economy, limiting the size of banks, occupy wall street, RBS, UBS