Douglas Carswell

06 JAN 2016

Structure - not culture - is the problem with our banks

Britain's banks are in bad shape. They are too indebted, too protected from the disastrous consequences of their own decisions, and – thanks to decades of Government subsidy – far too big. They need serious, far-reaching reform. What they don't need is a pointless official review into their "culture."

Several Labour MPs on the Treasury Select Committee are apparently furious that the Financial Conduct Authority has scrapped an inquiry into "Britain's banking culture." But what do they think it would have achieved?

Watching bank executives work – as if they exist in a vacuum – will tell us nothing. To understand how banks act, we need to think about their incentives. That doesn't require an inquiry; they are there for everyone to see.

Broken banks are the result of perverse incentives dictated by the central bank and the Government. The Bank of England has kept interest rates – the price of capital – unprecedentedly low, so banks are incentivised to borrow and lend. The Government insures deposits, so banks are incentivised to run down their reserves. Taxpayers are forced to bail out banks when they fail, so banks are incentivised to take as many risks as possible.

If banks have a culture of excessive risk-taking, it is because monetary policy, public subsidy, and Government regulation has encouraged it. Recognising the symptom is not enough; we have to tackle the cause.

Last month, the UKIP Parliamentary Resource Unit published a report explaining the danger of banking collapse, and the reforms necessary to avoid it. I encourage anyone looking for a serious discussion of financial reform to read it.

We urgently need to end a financial structure that systemically transfers wealth from taxpayers to the Big Banks. If Labour MPs were really different from corporatist Conservatives, that's what they would be championing. Of course, we know they're not: in 2008, Gordon Brown instigated the bank bailout that amounted to one of the biggest transfers of wealth from the poor to the rich in human history.

Only UKIP is prepared to take on the Big Bank cartel.

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