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What should we do with banks?

Banks got into a mess because of two things, the bonus culture and a total lack of accountability. If you pay vast amounts to people and they realise that they can cheat and fiddle, they will do so.

I worked on a public flotation some years ago and was struck by how much the merchant bank got and what little work it did. The lawyers and accountants did all the detailed work, which took five months and charged by the hour. The bank simply creamed off a percentage of the whole deal.

This is what was and still is at the heart of a corrupt banking system, taking from productive parts of the economy, i.e. industrial companies.

The Libor scandal is still unbelievable – that traders became criminals in order to steal lots of money. Our legal system is beyond hopeless at dealing with vast, organised, white collar crime. Why rob a bank when you can steal a hundred times as much by working in one?

So, what now for banks? I hope the state-owned banks in Britain will be run as utilities, attracting savings (by putting up interest rates) and lending to businesses. No bonuses – banking isn’t difficult, if the current lot of bankers had been remotely competent, they wouldn’t have killed the golden goose – how stupid was that?

No, recruit some bright graduates, pay them a good salary and let them get on with it. Finance is a utility, like transport, essential for economic activity, but not a wealth creator in its own right.

If you look at all the profits made by the banks, they have simply been creamed off their productive customers. Ensure that profits will stay with the companies. Banks don’t create any value themselves.

The other thing we should do in Britain is take white collar crime seriously. Some of the high profile failed bankers should have been prosecuted for gross negligence. The RBS balance sheet was approaching the size of GDP – did no-one panic and realise that things were spiralling out of control?

The damage that they did was colossal, in terms of jobs and homes lost by innocent people as a direct result of their actions. Will there be any prosecutions for Libor fraud?

Government could do a lot more. Start by banning the practice of charging a percentage on a deal, make the banks charge for time, like the lawyers. That would dry up the bonus pot overnight.

Set national targets for banks to lend to businesses. It’s not the job of Government to set up national lending banks, they would simply lose money. Keep the risk of bad debts within the banking system and monitor their overall performance.

In other words, go back to basic banking as it used to be practised.

This was posted in Bdaily's Members' News section by Business Forecast Limited .