The future of banking and finance

The financial crisis was, first and foremost, a crisis of irresponsibility and poor corporate governance in the banking and financial sector. But since 2007, we have seen that problems in the financial sector quickly spread to the rest of the economy. We need to reform the financial industry with sound ethical values – to make future crises less likely, and to ensure that ordinary people do not pay the price when they happen.

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Reforming the structure and the culture of finance

In 2010, Lord McFall set up the cross-party Future of Banking Commission, bringing in David Davis MP and Vince Cable MP as well as representatives of industry, consumers and the general public. The aim of the Commission was to hold the first truly open debate on the future of the financial industry, and to suggest ways

The Future of Banking Commission also focused on the culture and ethics of banking. To make future crises less likely, it is necessary to change the way banks operate. A new culture of professional ethics should be fostered, with a professional regulator along the lines of the medical or legal professions. Lord McFall called for this in the House of Lords in September, and recently questioned Sir John Vickers, who chaired the Government’s Independent Commission on Banking, on this issue.

Lord McFall has been strongly in favour of splitting the banks: creating new, safe banks for people, engaged only in retail activities and not involved in the “casino” banking activities which have caused the financial crisis. This would mean that, in the event of a banking crisis, the Government would be able to protect the retail element without bailing out the investment banks. Mervyn King, Governor of the Bank of England, has also favoured such a split.

Lord McFall has also led calls for a public-sector bank, such as a “Post Bank,” and supports the remutualisation of the bailed-out banks such as Northern rock.

Getting bank lending to businesses

An urgent issue for the economy is restoring bank lending to large and small businesses. The UK is particularly dependent on its banks as a source of finance for economic growth, so an economic recovery cannot happen without a full recovery in the banking sector.

Lord McFall recently questioned the Bank of England on lending to businesses (see video below). He has also called for a national investment and infrastructure bank to ensure that lending is available to grow the economy and create jobs.

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