8th February 2013 Washington DC, USA
Financial Reform: The Long and Winding Road
Banks. Bankers. Financial Services. Bail-outs. LIBOR. Bonuses.
You are probably a bit fed up of hearing all those terms. Haven’t we been talking about banks and the financial sector non-stop for five years? Isn’t this stuff meant to be boring Wouldn’t we rather be talking about Beyonce at the Superbowl instead?
These issues are hugely important and, like it or not, we are going to have to continue talking about them. Despite the retrenchment of recent years, our financial sectors are still important for British and American national economies, employing millions and exporting billions of dollars worth of services across borders (the UK’s financial sector employs over a million people with a trade surplus in 2011 of almost $70 billion.
Additionally, the flow of credit is vitally important to delivering a enduring recovery: loans to small businesses to expand their activities; loans to families to build homes; loans to workers to support their education and professional development; and in the UK, the Government is doing all it can to help encourage that lending through a scheme called Funding for Lending.
Another reason why we will continue to hear about the financial sector is that learning the lessons of the financial crisis is an important step towards ensuring it does not happen again. Those lessons are still being digested and the reforms implemented.
On Monday, the UK Government published the Banking Reform Bill. This marks the next step in the Coalition Government’s ambitious plans to reform the UK banking sector in a smart way. This bill will fundamentally change the structure of the UK banking sector by making the banks more resilient to shocks and more resolvable in the event of a failure.
This would significantly reduce the severity of future financial crises while ensuring that taxpayers will no longer be on the hook for banks that get into trouble.
This week we were also reminded that banks are still “atoning for the mistakes of the past” as the Chancellor has noted. Royal Bank of Scotland agreed with UK and US regulators to pay a total fine of over $600 million for manipulation of LIBOR interest rates.
It is absolutely right that wrongdoing such as that is dealt with properly. But past mistakes can also become a catalyst for change in the future. We shouldn’t let ourselves get distracted from the fact that reforms are happening and that wrongdoing is being tackled. These corrective actions should be welcomed if they mean we can look forward to a more stable and secure future.
The British Chancellor of the Exchequer has said that 2013 should be the year that the banking sector turns the corner. There is more work to do to ensure that happens but let’s not lose sight of the fact that, slowly but surely, we are moving in the right direction.