This was discussed at today’s Compass conference at the Institute of Education, Bedford Way.

SPEAKERS: Catherine Howarth, Fair Pensions (The Campaign for Responsible Investment);

Lindsay Mackie, Post Bank Campaign;

Mel Evans, PLATFORM;

Gavin Hayes, Compass (chair)

The Good Banking Forum is a new project by the New Economics Foundation and Compass to aspire to a safe and secure banking system. The Forum argues that the English banking system remains unreformed, despite a bailout of £850 bn in this country alone, and adopts a mantra of ‘business as usual’.

The New Economics website provide the following:

Approaching the third anniversary of the financial crisis, the banks remain unreformed. Bonuses are back, and little of the public money used to bail out the banks has resurfaced to help people and businesses, while investigations like the Independent Commission on Banking seem to be making little headway against a powerful banking lobby.

Banking is no longer serving the needs of people or the useful economy. It also finances environmental destruction by investing in things like the dirtiest fossil fuels. Unless we change the way that we organise banking, the economy too will collapse, with all of the additional environmental and social damage that entails.

We have a once-in-a-lifetime opportunity to shake-up finance in the UK making banks serve the needs of people, business and the planet rather than provide short-term gains for shareholders and profits for themselves. Although there seems to be little government appetite for serious reform of any kind, the tide of public opinion is shifting. Even the Governor of the Bank of England is calling for fundamental reform. This seminar outlines what needs to be done to build a banking system that is safe and fit for purpose.

 

Like the Independent Banking Commission (“IBC”), the Forum provides that there must be a proper separation between the investment and retail sectors, but instead they that Vickers and Osborne has not gone far enough. The Forum has indeed started work to map out what a good banking system might look like, and one of the outcomes of their Summit will be to make submissions to Sir John Vickers’ Independent Banking Commission.

The final IBC report will be in published in September, looking at competition and stability. Lindsay Mackie argued that the notion of privatised gains and socialist losses poses problems for the free market, a so-called “the moral hazard” argument. The “too big to fail” argument leads to the “too big to fail subsidy” phenomenon; the Banks can borrow money at very low interest rates, unfairly inflating their profits (cf. aerospace and defence), which is inherently anti-competitive (for example, compared to building societies which are unable to benefit from such subsidies). This can act as a barrier to entry for new organisations, additionally, as they cannot compete. The risks are transferred to the State, indirectly pushing up the costs of Government borrowing. The Vickers Commission agree this is a problem, and consider that ‘ringfencing’ is the problem; the investment bank cannot run the retail bank into the ground. The two problems are that it does not get rid of the ‘too big to fail’ problem, and, because of the Government deposit guarantee scheme, retailing banking is partially underwritten and subsidized (which arguably should not be a function of the State).

Mel Evans from PLATFORM proposed that the bailout of RBS provided no stipulations of what they should finance following recapitalisation. “Green groups to sue Treasury on RBS investments” appeared in the FT in 2009 – just months before climate change talks in Copenhagen, arguing that the (previous) Government should not paying to further more fossil fuel benefits. The Treasury argued that it needed to take an arm’s length approach to tackling RBS, but it could have been more interventionist in taking the bonuses. Arguably, there needs to be a ‘transformational change’. In August 2010, the Sunday Herald ran a headline saying “RBS: £13 bn funding to companies blamed for global warming”, so PLATFORM argue a ‘21^st Century Breakthrough’ idea. Evans argues that the return on taxpayers’ money would be best served by taking their policy out of fossil fuels such that there should be greater convergence of banking regulation and green agendas. PLATFORM argue that any publically-funded investment bank should not provide continued support for fossil fuels, as this undermines green investment.

Catherine Howarth, CEO of ‘FairPensions”, argued that through pension funds we are all stakeholders in large corporates. Howarth feels that, if we are financing large fossil-fuel extraction activities, we may be compromising our future quality-of-life. These tensions in finance capital require a sophisticated analysis by fund managers; fund managers therefore are acting in a self-serving way earning themselves vast fees in bonuses, instead. People will be auto-enrolled into a pension scheme from next year, meaning from next year we will all be participating in capital markets. “Fair Pensions” currently campaign for responsible investment.

FairPensions grew out of a highly successful university-based campaign in the late 1990s which saw academics and students work together to transform the investment policy of theUniversity Superannuation Scheme (USS). The Ethics for USS campaign engaged thousands of academics and administrators at Universities and Colleges across the UK.

As a result of the campaign, the USS, then the 3rd largest occupational fund in the UK, formally adopted a socially responsible and sustainable investment policy, taking the crucial step of hiring staff to ensure the policy was properly enacted.  The USS has remained a national leader in responsible investment ever since.

“FairPensions” provides online tools through a portal (fairpensions.org.uk), so – in theory – you can gain control of your pension fund.