What kind of banking system will we have in 2020?
Put yourself in the shoes of a bank’s Chief Executive. Consider what your industry has been through since 2007: the panic of the initial crisis; the embarrassment of bailouts to prevent collapse; being the target of the public’s anger at having to foot the bill; and (presumably) the guilt over the part played by banks in Europe’s continuing economic crisis.
After going through all that, as Chief Executive, you would expect changes. Under current plans, by 2019 banks will have ring-fenced their retail arms and will be operating under new prudential requirements.
A slew of rules, mostly from Europe, but also from the now defunct Financial Services Authority will have changed the way banks do business. And, of course, this new banking landscape will be watched over by the new UK regulators and the European supervisory authorities (ESAs).
But is all this change in the right direction, and is it enough? Whatever the outcome of current proposals, they are not – according to the contributors to our new book – the end of the matter. In nef’s new book, Banking 2020, we present 12 politicians and regulators’ contrasting visions of what banking should look like in 2020. As the boss, you might take from the collection the lesson that the appetite for deeper-reaching change amongst citizens and their representatives continues to grow; reform ain’t over yet.
Beyond familiar calls for greater competition, diversity, consumer choice and culture change, there are three areas, touched on by some of our contributors, that we feel have not been adequately debated during the course of current reforms. First, the fundamental question of what the banking system is actually for, including the social and environmental outcomes we might expect it to support. This is currently inaudible in the reform debate which seems to consider only what banking does.
Second, there seems to be a lack of appreciation of the implications of fractional reserve banking. Though banks’ ability to create new bank deposits when they make loans is clearly stated by central bankers, it is not well understood amongst policymakers or the public. As a result its significance has been lost: if banks create the money supply, can we really consider banking reform in isolation of monetary reform?
Finally, many of our contributors, to varying degrees, show a willingness to question what was, until the recent banking crisis in Cyprus, a holy cow of modern banking: the sanctity of the general public’s bank deposits.
Where does this leave our vision of banking in 2020? We have some ideas for the future. But, as several contributors point out, delivering change might not be easy. Banks have so far firmly resisted the reform agenda. In the interests of political point-scoring and swelling the competitive advantage of their countries over others, politicians prone to gameplaying undermine the integrity of serious international work towards getting the rules right.
Bank executives, policymakers, and the public alike would be forgiven for being weary of the subject of banking reform and for yearning to talk about something else. But we must resist the temptation to relax when good economic times return. It is not enough to merely patch up the banking system so it poses less of a danger to itself and the public than it did in 2008. The UK wants and deserves the best possible banking system, and this might be a journey rather than a destination. We hope that this collection of essays helps point us a little further down the road to a better banking future, because if there’s one thing we can all agree on, it is that a better future for Britain depends on it.
This is an extract from Banking 2020, a new book published by nef. Sign up to our mailing list to receive a free electronic copy when it's released.
Contributors to Banking 2020: Steve Baker MP, Sharon Bowles MEP, Vicky Ford MEP, Mark Garnier MP, Tony Greenham, Damian Horton, David Jackman, Dr Syed Kamall MEP, Baroness Kramer, Andrea Leadsom MP, Chris Leslie MP, Andy Love MP, John Mann MP, John Thurso MP.
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