Time to fix the banks

Many advanced economies, especially on the continent, have struggled since the crash of 2008-9 thanks to the failure to mend the commercial banks. The main authorities of the advanced world lurched from being far too lax with how much banks lent compared to their capital, cash and reserves, to being too tough. As a result we have had slow growth or no growth, depending on the relative weakness of the individual national commercial banking systems. The US and UK fixed their banks more quickly than the Euro area, but still demand levels of cash and capital that makes normal levels of credit expansion difficult in this cycle. On the continent in the recession ridden economies of Italy, Greece, Portugal and until recently Spain, past excess has led to a long period of credit starvation.

All this cramps growth and opportunity. No-one is suggesting the banks should lend more to individuals and organisations that can’t repay the last lot they borrowed. This credit squeeze is also preventing new loans to individuals and companies that are not over borrowed, and stands in the way of the normal use of credit to grow demand for larger ticket items, and to expand business capacity to respond to rising demand.

I have long argued that I would rather the governments and Central banks since 2008 had concentrated on fixing the banks, than on Quantitative Easing as a palliative for not fixing the banks. I can see that QE could be better than doing nothing. However, one of its adverse side effects was to lower long interest rates, making it more difficult for banks to make a profit. This delayed their balance sheet recovery, as they need more retained profits to provide the buffers against future losses they need before lending more.

The arrival of Mr Trump may change all this. It offers an opportunity to turn our backs on excessive austerity banking, and to find some possible agreement between the Europeans and the USA over what the next phase of world banking regulation should look like. Basel IV, the possible further tightening of demands for bank cash and capital, is in dispute now. At the same time Mr Trump’s team may soon develop proposals to amend Dodd Frank and the US bank regulatory code that came in following the crash. Mr Trump will want to expand the US growth rate in part by making more loans available for good projects in the US private sector. That will require a new bank fix.

I will write more about this in future posts. The way to end austerity and slow growth is to fix the banks sensibly and credibly. The authorities made two big mistakes between 2005 and today. All now agree they were too lax prior to 2007. It is now possible more will come to see they have been too tough and too unhelpful to rebuilding well financed expansion minded banks since the crash. People may not like banks, but trying to punish them as institutions is a kind of self harm, as it depresses economic performance if the banks cant lend.


  1. Leslie Singleton
    December 13, 2016

    It is always good to see the odd, lonely, reference to the actual creditworthiness of the borrowers, not to mention the standard of the banks’ credit analysis rather than what I see as the excessive going on about what the Government can or should be doing

    1. Lifelogic
      December 13, 2016

      Many customers being denied credit are far better credit risks than the banks themselves and offering good security too!

      1. Hope
        December 13, 2016

        You and Owen Patterson were good in articulating leaving the EU on TV today JR. Although you still appear to be impatient with those who do not share your view. Try a little humour to persuade them.

        It is clear Hammond is going for delay and try transitional agreement in the hope WE will change our minds or a second referendum can be held. This idea needs to be killed stone dead now. His comment about the thoughtful politician is like the Osborne no one serious minded wants to leave the EU. It will irritate the public that Hammond is looking down his almighty nose in a patronising way towards the public. Although it might convince dim-witted MPs.

        1. acorn
          December 13, 2016

          The longer Brexit can be delayed, the greater the chance of a second referendum being demanded by the 99%; and, it voting “remain”.

          Between the June 2016 referendum and March 2019 Brexit exit, two million referendum voters will have died and been replaced by an equivalent number of aged 18 to 20 voters. The stats say the latter will contain a majority of “remain” voters.

          In a possible second referendum in 2019 – the later the better – the previous 52 to 48 “leave” vote, would probably be overturned with a very small margin.

          The longer Mrs May can string out the Brexit negotiations, the less the chance of the UK actually leaving the EU. Anything that can slow down the process, the better for Mrs May. Be it the Supreme Court; Northern Ireland; a referral to the ECJ, all obstacles will be gratefully accepted.

          1. Hope
            December 15, 2016

            I agree. The march of the mass immigration to the UK continues as well. Some of whom will be eligible to vote! Now the govt wants the LAs to increase our taxes, again, by 6 percent to pay for a mass immigration issue of social care. The numbers are staggering and the rate of increase even more staggering

    2. Richard Shelley
      December 13, 2016

      “People may not like banks, but trying to punish them as institutions is a kind of self harm, as it depresses economic performance if the banks cant lend. ” – This is only true where bank lending is the only way new money can enter the economy as is the current situation (See the poorly reported bombshell BoE release “money creation in the modern economy”). It doesn’t have to be this way. We can create money debt free (i.e. not requiring interest repayments) as QE has shown us – only QE doesn’t have to spent on buying government and corporate bonds but could be spent directly into the economy (and this doesn’t need to be inflationary). See “QE for the people” and positive money.

      1. Hope
        December 14, 2016

        We do have to punish or talk down. It is rather simple, separate the banks and make them responsible for any failure with personal liability to the directors and CEO. It will focus their minds.

        1. Hope
          December 16, 2016

          We do not have to punish or talk down. Sensible changes could easily and swiftly be made.

          While the banks bankroll the EU project for the Tory govt change is unlikely to happen. JR knows this but omitted it from his blog. Presumably in the hope one of us would do so.

  2. Lifelogic
    December 13, 2016

    Indeed, the banks are still a complete joke. Perhaps 0.2% interest when you lend to them unsecured (so negative in real terms) and then perhaps 18 times that when you want to borrow back off them (and this very well secured). This when the borrower is very often a far better credit risk than the bank itself.

    Property lending for development, commercial and residential property investment is very restrictive with government regulation, red tape & slotting rules getting in the way. Loan to value percentages are now rather too low. A deal I used to be able to do with perhaps just £200K of my own money might now need £600K of my money, so I and others can only do one third of the developments or projects.

    Lending is often restricted to five years too and anything remotely non standard is hard to finance at all.

    Osborne’s moronic fiscal attacks on landlords, developers and thus tenants making things even worse. Alas Hammond is in the same moronic rut and has done nothing to undo this self inflicted and pointless damage.

    Oddly it seems cheaper to borrow unsecured on special offer credit card deals than it is well secured on property, why?

    1. Lifelogic
      December 13, 2016

      The Government owned RBS/Natwest is perhaps the worse of all. They are selling off customers loans to other banks like Shawbrook inconveniencing customers yet further. Clearly they are not really a lending bank at all.

      Why on earth has the government not been able to sort out RBS that they own. Loads of good solid customers with security charged to RBS/Natwest have been denied credit by them since 2007/8 or forced to remortgage, causing huge harm to their customers and indeed jobs & the economy. The government shooting itself in the foot yet again.

      1. JJE
        December 13, 2016

        Absolutely agree. My first thought on reading the article is that we need to sort out our own problem with RBS before lecturing the rest of the world. Government control and the associated blatant political interference has just prolonged the death spiral.
        I’m counting down the remaining few days before I can stop having any further dealings with them.

      2. Juliet
        December 13, 2016

        There is no help for RBS they only employ people with closed mindset, so there’s no expectation to change how they work and focus on efficiencies because it’s their way or no way. Banks that are not open to change keep repeating the same mistakes and continue to pay high bonuses rewarding failure.

        1. APL
          December 13, 2016

          Juliet: “There is no help for RBS they only employ people with closed mindset, ”

          No hope for their creditors either, £98Billion over eight years, there is no chance the tax payer will see a fraction of that.

          Should have been wound up, it’s losses crystalised and the infrastructure re-floated as a debt free consumer bank eight years ago.

          Instead, it’s still hemorrhaging tax payers money today. Well done Mr Brown.

    2. Lifelogic
      December 13, 2016

      As another example of the joke that the banks currently are, I have had a premier account with overdraft facilities of £20K for many years. It used to be charged at base plus 2.5% when I took it out, now it is charged at 11.9% (they will not negotiate) and this with base rates at 0.25%. So I do no longer use it other than in an emergency.

      So about 50+ times what they would pay me on deposits, rather higher margins even than the perfume and lingerie industries.

      Why is the competition authority and government not intervening to get some real competition in the joke that is the UK banking sector? It is holding the UK economy back hugely, even now more than 8 years after the crash.

      Carney seem to think bank credit is readily available, he clearly has not got a clue about what is actually going on at the coal face.

      Does Carney just go off what the banks tell him? It seems so.

      If Hammond wants better productivity sort out some competition in banks – and go for cheap energy, easy hire and fire, a bonfire of red tape, cut taxes, undo the Osborne vandalims and cut the endless government waste that is everywhere. But Hammond clearly does not. Or so it seems so far.

      1. A different Simon
        December 13, 2016

        Look at the margins they make on FX conversions which in many cases will net out to virtually zero .

        That sort of profit is indicative of cartel practices .

        I dispute the implicit assertion that banks finance the economy . Far better to allow individuals to retain a surplus and let them do it .

        Banks got wrid of their small business lending expertise 20 years ago .

        Hoping Donald Trump will fulfill his pledge to reinstate Glass Steagall .

        We need the FIRE sector to be reduced in size as currently it is crowding out main street .

      2. NickC
        December 13, 2016

        Having seen government/semi-privatised monopoly government services waste at first hand, I can agree with you.

        However it appears extraordinarily difficult for government politicians to actually find out exactly what is going on. All the wasters’ vested interests are in obstructing efficiency and effective political oversight, even assuming the politicians know what they are doing.

        That of course is one of the reasons that less government is more efficient government. There must be a sort of Laffer curve for power – too little and the thing is out of control; too much and corruption becomes endemic.

    3. Lifelogic
      December 13, 2016

      The banks (and certainly the government owned RBS/Natwest) were not only not lending to many sound customers, they were also putting unreasonable obstacles in the way of their customers borrowing from other lenders on second charges.

      Basically putting more spanners in the works of their customers and damaging the economy and their customers businesses in the process.

    4. Dame Rita Webb
      December 13, 2016

      LL if you were a banker and you realised that the current “prosperity” was built a rapid expansion of personal debt, that is growing at the same pace as it was in 2006, why would you want to put yourself at further risk? I was out and about in Newcastle at the weekend. The banks or somebody though is still active in funding the continued expansion of “prime” student accommodation. This is despite the Chinese struggling with their debt mountain, so it’s likely the supply of Chinese students is about to dry up. No doubt the retail sales figures will be a disappointment too this Xmas. Northumberland St was extremely crowded, however not many people were actually carrying bags. Those people that had shopping bags had them mainly from the deep discount retailers. I was after some shoes from a mid range manufacturer. I was amazed to see that their shop was selling stuff with large discounts and this is prior to Christmas. Northumberland St is a prime retail area, one legendary provider of underwear has its second largest UK branch there. It is not some provincial back water. As you have probably seen in the press too armed coppers were on the street too because of the terrorist threat. I wondered what has caused that to happen?

      1. Lifelogic
        December 13, 2016

        I am not suggesting particularly high risk lending at all. Even very low risk customers with sound security are being denied the credit they need to invest in their businesses and create jobs. This or they are being hugely overcharged for them.

        Cut out the rip off middle men banks seems to be the best approach.

    5. Leslie Singleton
      December 13, 2016

      Dear Lifelogic–Puzzles you that banks won’t rush to lend more than five years? There is nothing special about five years–Why not ask them to lend 25 years? There seems to be confusion with what they call equity. I remember one of my first loan requests (in America, handling what they call the ‘walk-ins’). I asked the (not particularly reliable looking) pair wanting money how much of their own capital they were planning to provide, to be told, straight-faced, ‘But we thought you would be providing the capital’. A real problem with longer term lending is that, for reasons I never understood (and I don’t suppose it’s changed much) there was no premium worth a damn in terms of increased margins for the significant extra exposure. There are many types types of borrower and loan but in general it is easy to place too much reliance on security–it costs a lot to get the legalities watertight, to value it regularly, insure it where appropriate (regularly checked of course) and indeed to realise it when necessary–it can have a way of disappearing when you need it. Sitting behind a desk with people asking you for money is not quite as easy as I gather you think. Would you have the Government make the individual decisions?

    6. Lifelogic
      December 13, 2016

      Excellent performance on the Daily Politics albeit rather brief. Why do they choose to have Margaret Beckett on for the whole of the programme. She has been wrong on almost everything for the whole of her life and said nothing of any value on the programme at all.

      We should however get rid of most employment law protections which do more harm than good and indeed most of the farming subsidies.

      So. just as I suspected, Hammond wants a four year soft Brexit (which will not be a real Brexit at all in the end). This according to the Telegraph today. Clearly one can hardly trust someone who thinks HS2 is a good plan, likes all the green crap and has kept stamp duty at 15% (and all Osborne’s other absurdities) in place. Even further increasing IPT tax now to 12% and continuing his Osborne’s IHT promise ratting and pension mugging.

      We will surely never get out under May and Hammond. Four years takes us to the next election so nothing would be guaranteed at all.

  3. Jack
    December 13, 2016

    Financial regulation on the asset side, not the liability side, is the way to go if you want to effectively control money creation by commercial banks. Higher interest rates clearly don’t affect bank lending in the intended way – in fact bank lending is usually highest when rates are higher! This is because higher interest rates mean more interest income for people, which more than offsets the extra borrowing costs (since the government is a net payer of interest to the economy).

    Higher risk-free interest rates also mimic the term structure of prices, directly causing higher inflation. That is, if the BoE set the Bank rate at 1000% starting today, prices would roughly rise by 1000% annually.

    So, to fix the banks and restore a prosperous economy once again, simply get the BoE to cease manipulating the interest rate market and set the Bank rate at its natural rate of 0% permanently. Then, realise that restricting banks means less aggregate demand, and so make up for that by running a larger government deficit.

    1. Jack
      December 13, 2016

      That is, the place for market discipline should be on the asset side of banking. Banks should be funded without limit with government insured deposits and loans from the central bank, but there should be capital requirements etc to control the amount of lending.

  4. Mark B
    December 13, 2016

    Good morning.

    We need to differentiate between High Street Banks and Commercial Banks. The first should be seen as a safe way to deposit and borrow money for simple personal and small commercial loans. The latter can accommodate larger commercial loans and dabble in the Casino banking, but with the clear understanding that, should they fail it there will be no government money to save them and their investors will lose all their monies.

    Never again shall the twain be allowed to meet.

    1. Hope
      December 13, 2016

      Absolutely, I would say separate not differentiate. The best regulation is personal liability or the reality of going bust. It focuses the mind.

  5. Prigger
    December 13, 2016

    Trump’s choices for his Cabinet may suggest his move on the banks will come early. Mr Hammond could suggest a transitional period to Trump. He’ll be all ears, I’m sure.

    1. ian wragg
      December 13, 2016

      I think Hammond is just kite flying for No. 10.
      Getting us to stay in the EEA would be EU lite with all the obligations to the 4 freedoms without representation.
      The pit stop would become the destination.

  6. Narrow Shoulders
    December 13, 2016

    I struggle with your statement

    “However, one of its adverse side effects was to lower long interest rates, making it more difficult for banks to make a profit. This delayed their balance sheet recovery, as they need more retained profits to provide the buffers against future losses they need before lending more.

    I would have thought the banks can make their margins on volume whatever the base rate. Their failure to rebuild balance sheets seems to me a symptom of paying out large bonuses while not making the profits they used to.

  7. Bert Young
    December 13, 2016

    Banks simply reflect the society we live in ; credit is freely available , personal debt is almost uncountable . The professionalism of Banks and the skill of its staff disappeared when the local Bank Manager no longer was a key figure in the community . He understood local economics , knew a good risk from a bad one and accounted to his superiors within a rigid set of rules . The Banking sector generally also took a massive step backwards when the High Street Banks ventured into the Merchanting sector .

    The moral code that was the bedrock of Banking also tumbled when its recruitment practices and the role of the computer became introduced . Other features that focused on variables and futures did nothing n my opinion to add to the professionalism of Banking ; today it is an entirely different world to what it was 50 years ago .

    The fact that drastic overhaul and stricter regulation is necessary is no surprise . It will take strong and persistent efforts to return Banking to a respected and professional condition .

  8. Baron Hardup
    December 13, 2016

    Dame Rita Webb is observant. She is also right down here in the Fens too. I think there is a lot of credit card borrowing going on and also that people are being very careful too. We shop in Tesco and Lidl and the same goes for us. Lots of charity shops, and other “deep discount retailers” in our town.

    And what about all those useless derivatives? How many are left as “capital stock” in the Italian Banks? Or indeed the British ones? Nobody is saying – and I don’t blame them. We do not talk much about our debts – or our little peccadilloes either, do we.

  9. acorn
    December 13, 2016

    Did you see US federal budget deficit totalled $587.33 billion in the 2016 fiscal year that ended Sep, roughly 3.2% of gross domestic product; up from 2.5% of GDP in 2015. The US version of our OBR, reckons it will rise as spending growth outpaces revenues, reaching 4.6% of GDP in 2026. That’s before Trump has a go.

    The bits of Dodd-Frank the banksters hate are the Volcker Rule, which prohibits banks from proprietary trading in securities, (Casino banking), an area in which they often reaped large profits. Stress testing they reckon is too stressful, and the rules on capital and liquidity, can produce perverse results. Complying with both minimum capital requirements (a liability) and liquid asset requirements (an asset), limits lending to businesses they claim.

    Bring back Glass-Steagall Act and keep Dodd-Frank with a few mods; or, we might as well replay the Casino banking crisis of 2008. Applying both in the UK would be a good idea.

  10. stred
    December 13, 2016

    While fixing RBS, it would be a good idea to ask whether they have lent any money to the French EDF to buy most of the nuclear power stations here, how their French nukes are doing and whether the firm is secured by the French government. Also, would it be alright to ask them to build a different cheaper, approved and reliable series of nukes on their sites in the UK, rather than their EPR. Perhaps the loan could be called in? Perhaps not.

  11. Antisthenes
    December 13, 2016

    Far too much of our society is plagued by state intervention. An intervention that causes a continuous cycle of crises and necessitates even more intervention. If the state and politicians had not interfered with the banking system. Believing their own wisdom to be superior to that of naturally occurring events then the financial crisis would not have happened in the way it did and would have fixed itself much more quickly than it has. The role of the state is to police society not to control it. The citizens of society are perfectly capable of doing that. It is them who build methods to provide us with our needs and devised systems by which that provision is done efficiently. State intervention only disrupts the provision process. Frequently destabilising it, making it not fit for purpose and always setting it up to fail.

  12. Ralph Musgrave
    December 13, 2016

    The basic problem with the private bank system is that that private banks are allowed to create or “print” a form of money which competes with the countries official currency: Bank of England issued pounds sterling. A large number of authorities thru history have opposed this practice: e.g. Abraham Lincoln, Milton Friedman and three economics Nobel laureate economists apart from Friedman.

    Private banks’ vulnerablility stems precisely from the fact that they issue money: it means they end up with short term liabilities on the liability side of their balance sheets (i.e. money), and long term loans or assets on the other side. “Borrow short and lend long” is invariably risky: it has led to banks collapsing regular as clockwork throughout history. It’s about time we banned private money printing and fixed this nonsense.

    Numerous organisations around the world are currently campaigning to outlaw private money printing, e.g. Positive Money in the UK, “Monetative” in Germany and “MoMo” in Switzerland.

  13. Mike Wilson
    December 13, 2016

    Looking at the heading of this piece – Time to fix the banks – one feels a strong sense of Deja Vu.

    I wonder how many more times will I read that headline.

    On the subject of lending, the banks are still lending eye-watering sums into the housing market. My sons now have a £385k mortgage, payable over 35 years, at an introductory (2 year) interest rate of 1.99%. I did warn them … but, then again, even a modest increase in interest rates is going to trash this consumer-debt driven economy.

    I have the strong sense of Nero reaching for his fiddle.

    I sense successive governments are generally fairly clueless. They get into power and then think ‘wow, now what do we do?’ And, devoid of ideas, they carry on as before – while government debt and consumer debt continue to climb to the stratosphere, they obsess about ‘Brexit’.

  14. Iain Gill
    December 13, 2016

    Given that Mr Trump has declared “The F-35 program and cost is out of control”, and shows signs of pulling the plug, what exactly are we going to do with 2 rather expensive aircraft carriers with no planes to put on them? And no gear to handle other types of planes on board either.

    Another public sector procurement fiasco.

    1. ian wragg
      December 13, 2016

      Perhaps the government could put the money into
      a) developing the Harrier to suit.
      b) put catapults and arrestors and marinise the Typhoons.

      1. M.A.N.
        December 13, 2016

        We sold all our harriers a few years ago to the yanks for peanuts, they now reside in a desert to be cannibalised for spares. Another coalition gem.

  15. formula57
    December 13, 2016

    Whilst I follow that the unwillingness of banks to lend will restrict economic activity, and that such unwillingness will persist for so long as banks’ balance sheets are weak with the burden of bad and doubtful debts, I do not see that there are at present many willing would-be borrowers since the lack of demand from customers seems pervasive enough to suggest new investment will not often yield enough profit to make taking the risk appear worthwhile.

    Why does the government not replicate the ICFC if new sources of borrowing are in short supply? Creating new credit-providers is surely a cheaper way for taxpayers to proceed than bailing out the existing zombie banks, is it not?

  16. Stuart Saint
    December 13, 2016

    Banks are vital to capitalism so the left need to attack them. The Banks do merit criticism and have overpaid execs and traders for poor management and results.

    1. Mike Wilson
      December 13, 2016

      Banks are vital to capitalism so the left need to attack them. The Banks do merit criticism and have overpaid execs and traders for poor management and results.

      If the job of a bank is to provide a safe place to save/keep money and to lend it to those who will use it to create wealth (or, of course, spend on a holiday which also, in its own way, creates demand (at least) if not wealth) why can’t we have a state owned bank that does not need to pay its savers 0.1% and charge its borrowers 5%?

  17. m
    December 13, 2016

    Places like Greece were not in a position to lend . The money they were loaned by the EU only gets them into temporary survival mode. The problem is the one you have already outlined, the disparity in strengths of the individual banks . Surely credit should reflect these differences and allow the banks to grow at their own rates. like anything else universal fixing something is fair to one and not another .

  18. Ham n eggs
    December 13, 2016

    Will The Rt Hon David Davis MP Brexit Minister be answering questions normally reserved for Chancellor of the Exchequer?
    I guess someone should be there to answer sensibly.

  19. ian
    December 13, 2016

    I do not think the banks will do much or politician, i mean you join the EU to crush the small businesses that how brexit got started, in the 1980s and euro in the 1990s and now the 2008 crisis, ideal to keep small business down and in there place while big businesses hang on to market share with not a lot of competition to worry about, is that not the whole idea, keep the big boy at the top or did i miss something, what happening to small business is because of parliament who are run by big business and EU, you do not see politician running around after small business but big business they fall over backwards.

    Is that not the way of the world, who the ear parliament win.

  20. Juliet
    December 13, 2016

    Economist Ann Pettifor (Labour Party Economic Adviser) on SkyDebate claimed that EU has all the answers to the economy, and the UK is the cause for all of Europe’s woes. Pettifor said UK needed to stop seeing itself as a nation and succumb to EU collective economic vision, because it’s wrong for the UK to focus on its own interests (as is EU). Pettifor believes that the UK should be blamed as the architects of the Eurozone, Euro, and not understanding that the countries in the EU are still recovering from the harm of the WW2, and how it was the EU that saved Europe from WW2.

    As I remember rightly it was Robert Triffin and Jacques Delors that help establish the Euro. And that the eurozone would only include small number of core states with convergent economies, rather than the larger, divergent set of countries that now has.

    A pessimistic view from an economist who has a different interpretation of history, even more worrying if Banks are taking guidance from ‘so-called expert’ like Pettifor

  21. Anonymous
    December 13, 2016

    The issue is credit itself.

    It is a form of money creation and needs the strictest regulation – Capt Mainwairing knew this well. Hence we now have debts beyond all the money that has ever existed.

    We now have whole populations consuming on some optimistic notion of what their future output is going to be, and others taking out loans on the notional value of their homes. If the environmentalists want to tackle consumption then credit is where they should start.

    Fixing the banks means bringing them closer to dealing in real money and that means the western populations being denied their credit buffers to the reality of economic decline. Therefore the banks cannot be fixed.

    This will be blamed on Brexit too but the disparity between our inflationary policies and the EU’s financial straight jacket is what caused the mass immigration which brought things to such a head.

    The Credit Crunch preceded Brexit and has not gone away.

  22. Tad Davison
    December 13, 2016

    Last weekend, I watched episode 155 of Sputnik on RT (as hosted by George Galloway). The second half of the programme dealt with this very subject.

    Nomi Prins was GG’s guest, and has held some very senior positions in the banking industry, so she knows a thing or two about the wayward practises and the shenanigans that go unnoticed by the masses. She has written a book entitled ‘All the President’s Bankers’ which tells of how the banking system is still set up to fail, but massively benefitting a few, at everyone else’s expense. Hopefully, that will shine a bit of light on the dark secrets of what is effectively a criminal underworld in respectable clothing.

    Her views concur with my own, especially when she stated that the problem with the banks hasn’t gone away, it has merely been covered up. And as she explained it, it isn’t too difficult to see why the governor of the Bank of England acts the way he does.

    Just prior to the EU referendum, it was quite disturbing to see the former Chancellor of the Exchequer cosying up to one significant player in the 2008 banking crash, as though the then occupant of No. 11 would gain some kind of kudos from rubbing shoulders with these people. Those who are a little more savvy found it wholly unedifying to the point of being nauseating.

    So the banking system needs reform on a global scale, but in my view, that is not going to happen whilst we have politicians who acquiesce to these excesses, broadcasters and media who turn a blind eye, and a public that can’t be bothered until the brown stuff eventually hits the fan. Solve those problems, and we might eventually get a banking system that does what it is meant to do, and is fit for purpose.

    Tad Davison


  23. alan jutson
    December 13, 2016

    the banks should fix themselves, they have big enough margin between interest rates given to depositors and those charged to borrowers.

    plus credit card interest rates, plus costs for the merchants.

    one should really ask why are they still in trouble !

    1. Lifelogic
      December 14, 2016

      They are still filling old holes by ripping of new customers. They are only able to do this due to a total lack of real competition in the market. Yet no action has been taken by government to get some real competition in the market, indeed they have made things even worse.

      1. acorn
        December 15, 2016

        You are wasting your time expecting a Conservative government to increase choice and competition. I have said before, “free markets” don’t exist. Maximising supplier competition for a good or service, means no supplier control of the price and profits tending to zero!

        Conservative government privatisations create Oligopolies of four or five players who can send pricing signals to each other fairly easily; more players make that harder to control.

        The classic Oligopoly is OPEC, It has a formal agreement for collusion in price setting, a formal Cartel of suppliers of Crude Oil. When did you hear western neo-liberal governments call on the UN to dismantle OPEC?

        Imagine if UK mobile phone; train and electricity corporates, were allowed to play the same trick!!!???

        Read up on “Four Firm Concentration Ratio” (FFCR). The proportion of total output in a market sector, produced by the four largest firms in that sector. The FFCR is commonly used to indicate the degree to which an industry is oligopolistic and the extent of market control of price and volume is held by the four largest firms in industry. Anything greater than an FFCR of 85% is an Oligopoly.

  24. Mark
    December 13, 2016

    Fixing the banks requires changes to the economic environment, not just banking regulation. Our banks will remain vulnerable all the while we persist with failing to unwind our property bubble, and all the while we persist in white elephant investments such as HS2 and policies such as expensive energy. Dealing with the property bubble requires careful management down of prices in real terms through restricting the absolute size of loans for particular properties. Businesses will remain reluctant to borrow and invest when government policies use subsidies and regulation to tilt the playing field in ways that make no economic sense. Banks will then be denied sensible and profitable lending opportunities.

    Peter Lilley just published a report showing that the UK economy is to be saddled with a £300bn+ burden in the name of climate change. That is an investment climate that has to change if banks are to restore real profitability.

  25. British Spy
    December 13, 2016

    I am watching “Emergency Debate: Aleppo, BBC Parliament.
    Bob Stewart Member of Parliament for Beckenham is the only one who spoke who you would allow your daughter to marry.

  26. Denis Cooper
    December 13, 2016

    Off-topic, I’m rather bemused by the fierce objections to a transitional deal when we leave the EU. After nearly 44 years of entanglement with the EEC/EC/EU project I’m perfectly prepared for it to take quite a long time to completely disentangle ourselves with causing any major disruption on the way.

    However my condition is that the transitional deal must be in the form of transitional provisions written into a withdrawal treaty which takes us out of the EU when it comes into force, but with some of the present legal and practical arrangements wound down gradually afterwards according to a pre-determined schedule, not in the form of treaty arrangements which would take us out of the EU but at the same time effectively keep us halfway in through the EEA or similar, potentially in perpetuity.

    I don’t think there’s any question that the original six countries became members of the EEC when the 1957 Treaty of Rome came into force on January 1st 1958, and yet that treaty did not lay down that their common market would be created immediately and completely on that date; instead a total of twelve years, divided into three stages of four years each, was allowed for it to be gradually established.

    Similarly nobody would doubt that the UK became a member of the EEC on January 1st 1973 when the treaty of accession came into force, but it was agreed that not all of the treaty requirements were to be fulfilled on that date; the treaty included transitional provisions, for example that tariffs were not to be eliminated until five years after membership commenced, for fishing there was to be a ten year transitional period, the UK’s contribution to the EU budget would be gradually increased to the full amount after five years, and the UK’s existing trading relationship with developing Commonwealth countries the status quo would be maintained for three years, etc.

    I don’t see why similar transitional provisions should not be included in the treaty which takes us out of the EU, if that is what both sides wanted to be done to ensure a smooth and gradual departure; and that would avoid the risk that we would move from the EU to a supposedly transitional state such as the EEA, which then turned out not be a temporary or interim arrangement but instead an unsatisfactory permanent settlement.

    1. Mark
      December 15, 2016

      As someone pointed out, there is an element of symmetry between the conditions of Article 49 on accession to the EU, and Article 50 on withdrawal.

  27. Iain Gill
    December 13, 2016

    I find it quite refreshing to see the straightforward tweets about what is going on from Trump.

    1. pleb
      December 13, 2016

      Ian Gill
      Too right. Long winded Lawyer/Money Speak is passe.
      Ordinary people can see through it.

  28. Lindsay McDougall
    December 13, 2016

    What is needed is a clear intention not to bail out any bank that gets into financial trouble. Such a bank could shut its doors for a week, conduct a firesale of assets, then reopen. No taxpayers’ money should be involved.

    If this clear intention is recognised, then the banks’ shareholders will call EGMs at which THEY will lay down the limits on their banks lending money that they haven’t got. These should be commercial decisions, not Government decisions.

    Just accept it; banks are not special.

    1. Lindsay McDougall
      December 13, 2016

      It should go without saying that the problems of European banks are Europe’s problems. That is why the UK is leaving, the sooner the better. The creation of the Euro was not a UK idea; the pity of it is that John Major failed to veto the Maastricht Treaty when he had the right to do so.

    2. acorn
      December 15, 2016

      Why not just nationalise the bank and keep it running, share holders lose everything. Debt holders may get pennies in the Pound. Simples! The Treasury should have done that with RBS

      The best way to regulate Banks is for the Treasury to own one, lock stock and barrels. Regulate from the inside not the outside; and, make a handsome profit at the same time That way the LIBOR scam would have been spotted easy.

      Same with Trains on the East Coast line, “state-owned bad, private good”. The government found out how easy it is to make money taking back one of its own franchise contracts. So good it gave it to Virgin in the dogmatic interests of “consumer choice and competition”. I expect Virgin will end up owning all the franchises, then sell them off to the Chinese.

  29. vince richardson
    December 13, 2016

    We have a dilema in the West with fixing our banks.The current so called “fractional reserve” model allows banks to create money to lend out.This means most of our money in circulation is debt based.So to create more money/demand we need more loans which means someone somewhere has to go into more debt to allow this.The more we go into debt the more money is in circulation and this is the dilema.Governments say we should reduce our private debt ,yet if we do that it would have a negative effect on the money supply/demand/growth.
    Currently their has lack of money in circulation and the BoE is tasked with increasing the money supply by getting banks to increase lending.Hence we had rounds of QE,except that has not worked.
    Besides no one wants to borrow in a slowdown/recession,so simply having banks sit on piles of reserves to lend is not the answer,business confidence is the answer and that does not come from the banking sector.Using the banking sector to create a recovery is thus doomed to fail.We need to get a bigger more powerful actor to create that confidence….i.e the State,

    The Positivemoney organisation has been advocating we transfer to using a non debt money supply.That is, the state should create the money and spend it into the economy not the banks….democratically of course.At the moment we are at the mercy of private banks who create about 97 % of the money we use and we have no say in how much is created or where it gets invested.The banks have in the past misadvisedly invested around 83% of all their loans into non productive assets,i.e property and stocks/shares,which just creates asset bubbles.
    Far better to stop them doing this as it creates boom/bust crashes) and have the State creating the money to spend as and where we democratically decide it is for the wider benefit of society.We would also have a lot less private debt and the banking sector would be safer.

  30. A C Howey
    December 13, 2016

    Any relaxation of bank regulation would be a disaster. Look at the scale of the PPI scandal! If the banks can do that AND manipulate the oil price, gold price, LIBOR, etc with the current level of regulation, how many crimes are they going to commit if regulation is reduced (no question mark: it’s a rhetorical question).

    The private ownership (by banks) of a nation’s money supply is simply abhorrent! It enslaves the citizens, leaving them with higher taxes & ever growing (national & private) debts to bequeath to their children.

    Ask yourself why a democratically elected government must borrow at interest from a private bank, when it can instead create sovereign money free from debt. As previous posters have alluded, there are organisations (such as Positive Money) that are campaigning to democratise the money supply & have new money created in the public interest, instead of for private banks & their shareholders. I’d encourage all readers to look them up: it’s a real eye-opener.

  31. Mick
    December 13, 2016

    I see the bias eu loving BBC are in there element that inflation as gone up, and guess what their putting it down to Brexit, am I missing something here but are we not still in the eu and still contributing into it, of course it’s not down to countries and manufacturers trying to screw us, well I’ve got news for them and all the remoaners they know who they are,
    WE ARE LEAVING get use to it

  32. Listener
    December 13, 2016

    JR on BBC Daily Politics…25:30 mins in to 33:30 Surprisingly about Brexit


    1. Narrow Shoulders
      December 16, 2016

      As ever Mr Redwood you held your corner well but you did allow self-righteous Ms Beckett to get away with the “my experience of international agreements is that they take a long time and are complicated, I have done it” comment. This gave the moderator the opportunity to imply you were naive.

      The response to this line, which would also stump the moderator, is that Ms Beckett and her ilk’s experience of negotiating international agreements is to invoke changes to the present arrangements. We are advocating no change to the present trading arrangements so there are few details to cause delay. This is not starting from scratch it is continuing most of the existing scenarios.

      The only sticking points are: freedom of movement, if it is so good why don’t they want to keep it for themselves without letting us have it?; and our budget contributions which we will of course no longer have to pay as this is not a fee to access the market but an infrastructure payment.

      The only reason to make the negotiations difficult is to punish us for leaving and to discourage others. Once again if the club is so good no one else will want to leave.

      Similarly if the EU does not want to accept our generous offer of tariff free trade, leaving and using WTO rules also requires little negotiation.

      Negotiating to retain an arrangement is much easier than amending one and businesses do not punish their customers (fleece yes, punish no).

  33. Deja Vu
    December 13, 2016

    Everywhere I go complete strangers make random anti Eu /anti government comments to me. Time to fix the Banks. Prose is pretty.
    Do it then.

  34. hefner
    December 13, 2016

    It would be interesting to get JR’s views on Dodd-Frank and Glass-Steagall and how he would amend them.

    1. libertarian
      December 14, 2016


      “It would be interesting to get JR’s views on Dodd-Frank and Glass-Steagall and how he would amend them.”

      Why? They are both US legislation , nothing to do with us. What about German banking rules or French banking rules etc ( they’re all different, because we dont have a single market in services in EU)

  35. Cunning Plan
    December 14, 2016

    Southern Rail Strike

    It is unclear why the management insist the driver should close doors and also insist that conductors will also be on the train ( or most trains ), will not lose their jobs, but will “do other things”.

    Like what? Mouthing the “Chu-chu—-chu-chu—chu-chu making sure everyone has a really good time?

    One always felt a little more secure when there were conductors and conductresses on buses. Now there is just a CCTV camera so your family can later see you getting stabbed to death on prime-time TV.

  36. Gary
    December 17, 2016

    You can’t fix a pyramid scheme. The central banks are the underwriters, via inflation of the currency, of this scheme. We, the people, pay this tax.

    It is a scheme of organised crime. Let’s not pretend that we can fix it anymore than we can fix an extortion racket. Just abolish it and get sound money.

  37. Gary
    December 17, 2016

    How can the clueless state be trusted to issue money ? The average mp has demonstrated to be on the take (see expenses scandal)

    Much better to use a fix quantity money, that cannot be counterfeited, that is subject only to market demand, and that is divided down as demand increases the value of the unit

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