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Bookmark and Share David Boyle is a nef fellow, a writer and the editor of nef‘s newspaper, Radical Economics.

“Future students of history will be shocked and angered by the fact that in 1945 the same monetary system that had driven the world to despair and disaster [in the Great Depression], and had almost destroyed the civilisation it was supposed to stand for, was revived on a much wider scope.”

So wrote the French economist Jacques Rueff in 1964.  It feels much the same now: we would be insane to go back to the same disastrous banking pattern we had before the bail-out, but – thanks to the government – we probably will.

Only a miserable 0.6 per cent of the government’s stimulus package is going on green measures, to genuinely shift the way the economy works.

Lord Mandelson has come out as a born again defender of the financial status quo.

But worst of all, the latest Bank of England assessment shows that, despite everything, business lending to small and medium-sized businesses is down again.  Differential interest rates and fees are both still rising.

Local bank managers who know their community well are largely a thing of the past.

Local bank managers who know their community well are largely a thing of the past.

It has become a lot more expensive to borrow money, even for the lucky few who make it through the approval stage.

One of the many tragedies about the Westminster expenses scandal, as Vince Cable pointed out last week, is that it robs MPs of the moral authority to tackle our dysfunctional banking system.

Ministers daren’t say anything too interesting, or too bold, in case heir colleagues assume they are throwing their hand into the ring for the Labour leadership.  It is a miserable prospect, and it may guarantee a swift return to banking business-as-usual.

To start with, it is time we broke the all-party consensus that somehow the government can use their holdings in the big banks to kick-start local lending again.  It hasn’t worked, and seems unlikely to work any time soon.

This is not only because banks won’t lend, but because they can’t lend using their current infrastructure and systems.

They have been consolidated to the point where they point towards the speculative economy and have little local lending infrastructure left.  Their lending decisions are taken by computerised systems which, because we are in a recession, naturally recommend against.

There are no longer bank managers, or local staff with the authority to pick out the success stories, using their knowledge of their local economy.

Our businesses are now in a far weaker position than American or German competitors, and potential competitors, because we have no equivalent lending infrastructure.  There are only 170 branches per million people in the UK, compared to 520 in Germany and 960 in France.

Now that the elections are over, this is what politicians need to do immediately:

money matters Why is this still not top of the agenda?  I think this is partly because, in this country at least, people don’t understand the money system.  Their mental map of it is nearly a century old: safe reliable Captain Mainwaring and vaults full of money.

I was assured some years ago by the Washington correspondent of a national newspaper (admittedly it was the Sun) that all money is based on gold.  It hasn’t actually been since 1931.

This is my excuse for writing an accessible guide to the way money works: Money Matters: Putting the Eco into Economics.

I hope (no small ambition this) that it might help dispel some of the bizarre mystique that bankers continue to exercise over the minds of the English.  Because what we really need to do is abandon the idea that our current useless system was somehow placed there by God, and demand the new local banking infrastructure we need.

Bookmark and ShareSargon Nissan is a researcher in nef‘s Access to Finance team.

George OsborneWhen George Osborne, Shadow Chancellor, called for the break-up of Lloyds and RBS, he echoed the recommendations of our report I.O.U.K. on the failure of British banks to provide credit appropriate to our economy’s needs.

It seemed inevitable that this issue would rear its head again, and now we finally witness the financial sector’s response, via its ever-willing ally, the Government and Treasury. Their response came today with a Treasury report  – commissioned before the worst days of the current crisis – that staunchly defends the right of big banks to get bigger. According to today’s Financial Times, the Chancellor and the authors reiterated the report’s findings that “an industry constrained on narrow lines would find it harder to develop new products”.

What does not seem to be acknowledged in the current debate is that the failure of overly-consolidated banking pre-dates the crisis. As we discussed in I.O.U.K., the inability of the banking sector to provide the necessary credit for thoses small businesses and sectors of the economy which do not enjoy unwavering Government support is not a result of the credit crunch and economic crisis. The reality is that banks have been withdrawing from communities, closing their branches and abandoning relationship-driven banking for over two decades now. And it is this retrenchment from the real economy which has made them so vulnerable to the kinds of economic shocks we have seen in the last eight months. Northern Rock and Bradford & Bingley used to be mutuals, but they abandoned old-fashioned banking and converted into shareholder-owned institutions in search of better returns. And the result of this shift? They both went bankrupt and had to be rescued by the taxpayer.

It was  selfish herd-like behaviour seeking the easiest profits, encouraged by policymakers since Margaret Thatcher’s 1980s reforms, which thoroughly undermined our financial system. Perversely, it is now the Tories who seem to perceive the contradiction of a banking system with a permanent Government get-out-of-jail free card for banks that are, in the Shadow Chancellor’s words, “too big to fail, too big to bail”.

Perhaps the Conservatives are willing to contradict the prior orthodoxy just to win political points? Or maybe Osborne is just concerned about how big a headache a banking system in need of permanent subsidy will be when he has to present the next Budget?

Bookmark and Share Dr Stephen Spratt is Director of nef‘s Centre for the Future Economy.


Bail-outs have now boosted UK national debt to staggering levels but have done little to stop the rot in our financial sector. By refusing to acknowledge the deep structural failings in the banking system, the Government is storing up debts they’ll probably never have to deal with, and no future government will be able to meet without decimating core public services. Banks that really have become too-big-to-fail leave the UK very vulnerable and must now be broken up. Soon to-be-published plans for banking regulation must go much further than tinkering with corporate governance and transparency. We need to separate investment banking from retail banking. We also need local banks that are in touch with their customers and able to respond to the needs of the dynamic small businesses on the frontline of our economy that will lift us out of recession.

Bookmark and Sharelindsay-mackie2Lindsay Mackie is a consultant at nef. She is leading nef’s post office campaign and works on Clone Town and Ghost Town Britain.

The Chancellor rightly talked about his careful preparations for the future and about the need for increased regulation of our failed cowboy banks.

He should also have offered a tangible reform in both areas in the form of a Post Office Bank which would simultaneously help small local businesses- the underpinning of our economic future- and increase people’s trust in the banking system. It’s not too late. As a practical and popular measure, he can still announce the setting up of a Post Bank in the wake of the Budget.

Read more about our campaign to establish a Post Bank and sign the petition to make it a reality.

Bookmark and ShareSam Thompson is a researcher and a consultant at nef‘s centre for well-being.

From Michael Lewis (via Dani Rodrik), everything you need to know about the Icelandic banking fiasco, explained with the help of a handy animal analogy.

You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets.

Bookmark and Share Dr Stephen Spratt is Director of nef‘s Centre for the Future Economy.

Before our eyes the financial crisis is accelerating into a downward spiral of nightmarish proportions. Today it was confirmed for the first time that the UK is officially in recession, as the effects begin to hit the real economy in earnest. Nobody expects things to get better before they get a lot, lot worse.

‘Decisive action’, we are told, is being taken to deal with the banks. The latest £50 billion guarantee package comes hard on the heels of the untold billions to ‘recapitalize’, or to provide ‘liquidity’, or just to keep the lights on a little longer in the hope that something turns up.

The government resembles a grimly optimistic hot air balloonist, spat out of a storm and crashing to earth while frantically pumping more and more hot air into the balloon, only to see it flow out of huge holes rent in the fabric of his craft. The pilot, lets call him Darling, will certainly delay the crash a little bit, but only at the cost of using up all of his gas. Once the basket hits the ground – in whatever battered shape – it will surely stay there.

Read the rest of this entry »

Bookmark and ShareJosh Ryan-Collins is a researcher in the Connected Economies team at nef.


Oh to be a fly on the wall when Gordon Brown and Alistair Darling haul the big banks in to Downing Street, demanding to know why interest rate cuts are not being passed on to small businesses and homeowners.   The press, not least the tabloids, have jumped on the ‘blame the banks’ bandwagon with relish.

But as we have seen since September, there is little national governments can do to encourage lending when the Banks are locked in to a global credit crunch with plenty more steam in its engine.  The reality is that these behemoth banks, through successive rounds of deregulation and mergers, are no longer structured in a way that properly serves the needs of local communities and businesses.  They weren’t doing much of a job even before the crunch, making their money not through careful loans to local businesses they knew and understood but  through investment in the speculative markets of high finance and consumer loans.

But as recession looms, community banking is making a come back.   In the last two weeks, Essex County Council and the City of Birmingham local authorities’ have announced plans for local banks.  Their aim will be to  lend public money at reasonable rates to cash strapped small businesses and homeowners in their areas.  What a wonderful idea.

Essex has been inspired by the successful lending models of small regional banks in the US, including its namesake across the Atlantic based in Virginia.  Importantly, legislation – the Community Reinvestment Act – in the US requires banks to disclose where and to whom they lend in their local community. Compliance with this act is part of the bank licensing requirements, and it also exerts public pressure if they are failing to invest in local communities.  As nef has argued in a recent report, similar legislation should be created for the UK.

Meanwhile, Birmingham City council, the UK’s largest local authority, is planning to create a bank to lend up to £200m to small businesses, as reported in the Financial Times.  The Bank of Birmingham (AKA BoB), which had its first incarnation in 1916 when Neville Chamberlain was the Mayor of Birmingham, will apparently also take retail deposits.  

nef has been making the case for community banking for some years and is currently involved in developing Community Banking structures with Local Authorities and other partners in mid-Wales, Merseyside, London, the Midlands and Somerset. 

A secure and stable economy requires a diversity of local and regional financial institutions, none of which will be too big to fail but all of which will be small enough to care about their local economies.  Essex and Birmingham have shown the way, now lets hope others, including perhaps the post offices, will follow.

Bookmark and ShareVeronika Thiel is a researcher and project manager on nef’s Access to Finance team.

tamed.Can the leopard change its spots after all? It appears so! It was a ‘leaked’ letter by Lord Mandelson to the Guardian that indicated a change in Government thinking. Instead of finding new ways to justify post office closures, the Government abandoned a tender for the running of the POCA and left it where it was – with the Post Office.

nef welcomes this move, but we also, as always, go a step further: we want to see the creation of a People’s Bank at the Post Office. Now, it seems, there are some MPs who start to come round to our thinking. As the Financial Times report, the Post Office could indeed soon be offering current accounts.

Since we seem to have the Government’s ear at the moment, can we ask you to consider the following when you recreate the People’s Bank?

  • make sure it is accessible for all, and a champion for innovation as the Girobank once was.
  • make it a bank for people on lower incomes and the financially excluded by being transparent and flexible
  • make sure it invests its deposits where they are collected – in the local communities
  • and use the opportunity to make the high-street banks follow suite.

Britain already has one of the highest banking concentrations, with only four high street banks covering most of the market. This reduces customer choice and stiffles innovation. By introducing a new bank, people would finally have what has recently become a scarce commodity: choice of where to bank.

I would not be surprised to find that many would choose the People’s Bank.

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nef employees blog in their personal capacity. The opinions expressed here do not necessarily reflect those of the new economics foundation.