Nobody wants to see a repeat of the great financial crisis of 2008, when…
The carelessness of regulators and the unbridled greed of bankers led the world to the brink.
National economies plunged into recession and, 16 years later, public finances in the world’s most advanced economies are still dealing with the consequences in terms of indebtedness and debt levels.
That is the part of the Starmer government’s legacy that he does not acknowledge. The former Labour prime minister
Restrictions: The Bank of England and the Treasury have given UK banks more leeway than international rules allow to continue lending.
Minister Gordon Brown was in charge.
The result of the crisis has been the loud sound of stable doors slamming shut.
Reforms such as the UK’s £85,000 deposit insurance upgrade, the separation of consumer and casino banking and stricter capital requirements have proven sensible, but, as is often the case, enforcers overstep the mark.
The current attempt to draw up “living wills” for banks, so that they can be liquidated and revived over a weekend without government intervention, has proven to be a farce.
The rules were trampled on in the spring of 2023, when first Silicon Valley Bank and then Credit Suisse collapsed, requiring government interventions.
At the First Republic in San Francisco, the intervention of JP Morgan’s Jamie Dimon proved more powerful than any living will.
New capital rules implemented by Switzerland’s central bankers’ club in Basel are designed to act as a safety barrier.
Even the Bank of England thinks this is too much and, together with the Treasury, has given UK banks more leeway to continue lending.
As one top banker recently noted, allowing academics with little lending experience to set the rules is folly.
Lending will never be risk-free. Strict capital ratios have produced poor results. The riskiest, long-term loans have been handed over to the non-bank sector, such as private equity, where there is little transparency.
An excessive amount of bank capital, which could be used for commercial and infrastructure lending, is in government bonds.
The decision by the Bank’s prudential arm to ease off the Basel brakes is correct, but if the UK wants a dynamic and competitive banking sector that can cope with low private sector investment and productivity, there is a strong case for further liberalisation.
As a legendary robber once said of banks: “That’s where the money is.”