Wednesday, May 16, 2012

Greenham: Value out of the Banking Crisis

Two meetings in Parliamentary rooms yesterday were addressing the issue of banks and banking. Which one will lead to a positive future for UK banking?  The Treasury Select Committee as reported in the Times 16 May  Don't waste taxpayer cash in hasty search for sweetheart was urged to wait and sell the 'state-owned' banks (RBS 83% LTSB 40%) later rather than sooner. It will take time, many years, to sort out the banks to a good enough shape to re-coup taxpayer cash at good prices.  This advice from funds which are showing heavy losses on their holdings of these shares and they don't want 'sweetheart deals' with such as Abu Dhabi to start the process off at low 'value-destructive' levels.

But in House of Commons Committee Room 9 there was a quite different outlook through a very hopeful talk given by Dr Thomas Keidel, Head of Financial Market Relations at the Deutsche Sparkassen-und Giroverband with discussion led by Rachel Reeves MP, Shadow Chief Secretary to the Treasury and Tony Greenham, Head of Banking at nef (new economics foundation). 

Dr Keidal  explained how the 423 independent saving banks (15,600 branches) provide banking for 44% of German businesses.  The essence of the German local banking system is that the banks are governed through a locally elected board, they are restricted to lending only in their own local area, they have no shareholders but they have an obligation to the general public. They do not carry out the investment banking practices that brought down the UK banks. The Spanish savings bank system (Caja Banks), Dr Keidal said, whilst having a similar name are now unrestricted geographically and this has brought banking problems which the German Sparkassen does not have. Swiss canton banks are to a similar pattern to the German savings banks and just as successful. Lending figures from end-2007 to date, comparing the small savings banks with the big German banks showed lending up 16% for savings banks and down 10% for big banks.  Swiss canton banks' lending was up 22%, big banks down 34%. UK big banks lending, down 16% and there are no figures available for small banks - guess why? Because there are no small banks! 

Tony Greenham of nef gave a list of banking options to remedy UK banking: 
1. The need to banish the 'no small banks' attitude of the UK banking industry and political mindset 
2. Make it easy for new small banks to start business
3. Establish a separate regime for small banks that do not carry out risky investment banking  
4. Establish local authority banks (as US) 
5. As the UK taxpayer now owns a large part of UK banks, re-establish these as a decentralised, local banking sector along German lines, after having sold off the investment banking parts. 

Tony Greenham said that this last would create real value out of the banking crisis. I wonder how long it will take for the obvious way forward for UK banking to break out of a Committee Room off a House of Commons corridor into your local high street?

Link to a short YouTube interview on small local banks.

reported and posted by Charles Bazlinton 

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