George Freeman Op-Ed in EDP
4th July 2012
Time For Some Deep Reform in the Banking System...
Now we know what we in Norfolk have long suspected. The City is out of control. And all of us – the silent responsible majority who have paid our taxes and obeyed the law and tried to make a living the old fashioned way – are now paying the price.
After the extensive mis-selling of Payment Protection Insurance (PPI), we now have mis-selling of complex interest rate products to unsuspecting customers like Adcocks of Watton in my Mid Norfolk constituency, as featured by Robert Peston on BBC1 recently. However we interpret the ‘exemptions’, ‘disclosures’ and other such legal small print, this latest example of mis-selling is symptomatic of a deeper problem in our banking sector – a problem of culture.
In recent years we’ve seen the banks move from the traditional model of safeguarding and putting to work local deposits to support local business growth, to the more lucrative, glamorous and profitable business of derivative instruments, complex charges and packaged deals. Swaps, Options, Futures, Forwards and Warrants – these shouldn’t be the concern of a new couple taking out their first mortgage, or a local entrepreneur who needs a loan to help expand his growing business. It is this 'quick buck' mentality which has let us down so badly and needs to change.
We need a fresh start. We need to hold those to account who have created this crisis. In a court of law where fraud is proven. Justice must be done. Heads must roll. But we must also restore confidence to the customers in the banking system. We need to cultivate a culture amongst the banks which serves to help SMEs access capital without fearing hidden risks in complex legal jargon and financial blurb. We must ofcourse also recognise that there are many hard working and good people in the banking industry. But we need responsibility in banking to be pervasive across the industry. This means supporting ‘good’ banks and encouraging a competitive market place in which the local bank can flourish, helping local businesses to thrive based on responsible lending – real banking to help the real economy.
Some ground is being covered. The government’s Banking Reform Bill will pave the way for fundamental restructuring across the banking sector, ensuring that it will no longer be possible for the casino mentality seen across the City to encroach on local, retail level banking. But the toothless regulatory regime that has been in place for so long will take some time to be brought up to date with the aggressive drive to make a sale which has begun to acutely define the banking sector.
But more must be done.
Local businesses have been let down. Our banks are in the unique position of being able to create an environment conducive to innovators in new technology and science. The innovation clusters in Norfolk and East Anglia have enormous potential for growth and development. Take Kiva – the micro-finance internet organisation raising funds for small businesses across the globe. Take the credit unions and mutuals and new forms of 'angel' finance for new companies, and 'tax increment financing" for new infrastructure. These types of innovative funding are what we need to help grow local businesses and the local economy to help rebuild our real economy.
I'm planning to go further in the coming weeks to highlight the need for much greater competition and transparency in the banking sector, with a much easier regime to promote new entrants. America has over 20,000 high street banks. We have less than 10. Banking has become too much of a cosy cartel for the few. We need a renaissance of smaller banks doing the old fashioned business of looking after our savings and lending to businesses in the local economy.
If that's too dull for the big bankers in London, then let's break up the market monopoly to some new providers who are interested in the local economy. We need deep reform of our banking system to support sustainable growth. Our economic recovery will depend on it.