Bank leaders in the UK are a disgrace to capitalism
Luke Johnson | Tuesday, 8 July 2008
IF you want to get a British entrepreneur worked up, one topic is bound to raise their temperature to boiling point: the behaviour of the clearing banks.
To ordinary business owners, it appears as if these organisations are the institutional equivalent of Jekyll and Hyde. In the space of a year they have gone from being rampaging expansionists to capital-starved risk-avoiders. Everyone in business is being battered by the blowback from the credit crunch. What on earth is going on in the financial services industry?
The UK high street banks are in effect an oligopoly that provides the loan capital to industry that in turn creates the wealth and jobs that keep the country going. They are vital to our capitalist infrastructure.
Their health matters -- not just to their shareholders and staff, but to the business customers who rely on them to provide loans, overdrafts, credit card processing and myriad other money-related services that every company needs to function.
Cut off that flow of funding and you step on industry's windpipe and starve the brain of oxygen. And the sort of arbitrary and brutal credit decisions being dished out to customers mean parts of the banking system are breaking down.
Some of the Big Five UK banks appear to be behaving worse than others. In several incidents I know about they have been unnecessarily short-term and unpredictable, ignoring long-term relationships and using excuses to withdraw facilities summarily or charge usurious fees. In some cases this knee-jerk nastiness will help drive companies to bankruptcy, destroy jobs and damage the economy and society while the banks will not even get much of their money back.
Part of the problem stems from the scale and complexity of banks' activities. In Barclays' 2007 annual report there are more than 100 notes to the accounts. How many of the board, or indeed the senior management, have studied that dense document and understand it all? Who really knows those risks? The auditors? The risk committees? The Financial Services Authority? I have my doubts. The balance sheet shows that at December 31 2007 it had
To ordinary business owners, it appears as if these organisations are the institutional equivalent of Jekyll and Hyde. In the space of a year they have gone from being rampaging expansionists to capital-starved risk-avoiders. Everyone in business is being battered by the blowback from the credit crunch. What on earth is going on in the financial services industry?
The UK high street banks are in effect an oligopoly that provides the loan capital to industry that in turn creates the wealth and jobs that keep the country going. They are vital to our capitalist infrastructure.
Their health matters -- not just to their shareholders and staff, but to the business customers who rely on them to provide loans, overdrafts, credit card processing and myriad other money-related services that every company needs to function.
Cut off that flow of funding and you step on industry's windpipe and starve the brain of oxygen. And the sort of arbitrary and brutal credit decisions being dished out to customers mean parts of the banking system are breaking down.
Some of the Big Five UK banks appear to be behaving worse than others. In several incidents I know about they have been unnecessarily short-term and unpredictable, ignoring long-term relationships and using excuses to withdraw facilities summarily or charge usurious fees. In some cases this knee-jerk nastiness will help drive companies to bankruptcy, destroy jobs and damage the economy and society while the banks will not even get much of their money back.
Part of the problem stems from the scale and complexity of banks' activities. In Barclays' 2007 annual report there are more than 100 notes to the accounts. How many of the board, or indeed the senior management, have studied that dense document and understand it all? Who really knows those risks? The auditors? The risk committees? The Financial Services Authority? I have my doubts. The balance sheet shows that at December 31 2007 it had