Banks should work for the public – we want a say
Whether you’re asking for a loan to launch your own business, or looking for a savings account to help you plan for the future, we need banks to support us. But 73% of us view the banking industry negatively. We need a banking sector that works for people, not profit.
The bail out
After the financial crisis in 2008 and the government’s bail out of the banks, we owned nearly 80% of the Royal Bank of Scotland (RBS) and had a 46% stake in Lloyds Bank. However, the government only agreed to bring the banks into partial public ownership temporarily.
Public shares in Lloyds have been steadily sold off, and in 2017, the bank became entirely privately owned. The government promised to sell some shares to the public at a discount rate – in the end, they went straight to investors.
We still own around 70% of RBS – but the Chancellor, Philip Hammond, plans to sell off the public shares at a lower average price than we paid for them. That’s great for investors, but a disaster for the public purse. We already lost £13 billion when George Osborne sold RBS shares cheaply in 2015. We could lose billions from Hammond’s sale.
By selling our shares for less than we paid in 2008, the government is throwing away taxpayer money in exchange for quick cash. The sell-off also means we won’t be able to benefit in the long-run from any returns on our investments.
A missed opportunity?
“The UK missed a big opportunity to reform the banking system after the crisis of 2008, and banking reform has since dropped off the agenda.” Gemma Bone, PhD student at Newcastle University
In the aftermath of the financial crisis, many of us saw the banking sector as both the main source of – but also the solution to – the problems faced by the British economy. But banking needed a wake up call.
Too little regulation and a lack of competition among the big banks meant serious problems for the taxpayer: the cost of bailing out RBS alone was £45.5 billion. Banks have paid out over £250 billion since 2008 due to reckless behaviour before the crash.
So, the bailout was expensive – but it was also an opportunity. By only focusing on privatisation, the government is ignoring lots of other innovative ideas for the future of banking. Globally, evidence suggests that publicly owned banks help economic growth, while private banks often put growth in danger due to excessive risk-taking. Big banks like RBS may work better if they were to be divided into local, not-for-profit public banks, or to move towards other forms of taxpayer ownership.
The New Economics Foundation makes the case for RBS to be transformed into a network of local banks with a clear mandate to serve the public interest. Public savings banks in the USA, Germany, and Switzerland have already had major successes – for instance, they did better at lending to small and medium businesses than private banks during the financial crisis.
If RBS had been localised in this way in 2008, the UK economy could have benefitted from over £30 billion. Rather than rushing to return to business-as-usual, we should be using our influence in RBS to try and improve our financial sector in the long-term.
Photo used under Creative Commons licensing, thanks to Elliot Brown https://www.flickr.com/photos/ell-r-brown/