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 be there to support us. However, 73% of us view the banking industry negatively. With significant public shares in both Lloyds Bank and the Royal Bank of Scotland, public ownership could help to create a banking sector that works for people not profit.
So what’s happening?
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 – it really wants to sell off public shares in these banks as soon as possible. Our share in both banks has been reduced: public shares in RBS are now nearer 70% and less than 6% in Lloyds – meaning the state is no longer the most significant investor in Lloyds.
There are two problems with this sell off. Firstly, it loses money for the taxpayer as shares are sold too cheaply. Secondly, this rush to sell off our shares misses the opportunity to reimagine our banking sector, creating banks that work for us.
Losses today, more losses tomorrow
Originally the government agreed to only sell our shares in Lloyds when the share price went over 76.3p, but now Philip Hammond has said he’ll sell the shares at even lower prices. By selling our shares for less than we paid in 2008, the government is throwing away taxpayer money in exchange for short-term cash. George Osborne already lost us £13 billion by selling a chunk of our stakes in RBS too cheaply. The sell-off of our shares 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, and 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. We need the banks, but we need them to work for us – not profit.
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 but growth in danger due to excessive risk-taking. Big banks like RBS may work more 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 – including doing 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 these banks 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/
Wed 08 Mar 2017. Source: www.cityam.com
Fri 20 Jan 2017. Source: www.commonspace.scot
Sat 14 Jan 2017. Source: www.telegraph.co.ukPhilip Hammond was right to halt the re-privatisation of RBS – it's time to dismantle it
Thu 15 Dec 2016. Source: www.independent.co.uk
Fri 09 Dec 2016. Source: www.thisismoney.co.uk