Ed Miliband wants to reduce the size of the banks to improve services to those who use them. I think he’s talking about me and you. Sounds like a good idea when you think back to economic crash of 2008 and the phenomena of “too big to fall” (TBTF).
Large banks making vast amounts of money, taking huge risk and not paying any attention to their lack of reserve. When they go down they take the economy with them and this is why governments have no choice but to pay the economic ransom. I’m not sure if this is included in the reasoning but this is my take.
Would a group of smaller, mili-banks work?
Ever heard of Creative Destruction? For the long term good make a change at the cost of others. Build a system that lets the banks fail without significant impact. With the threat of collapse, smaller banks might become more risk adverse. In America they have banks of all sizes but it didn’t help them! Could this be due to the TBTF banks underpinning the smaller banks and could the rate of globalisation eventually return the system to similar underpinning? Difficult to think about.
What about the smaller bank with an anti-big bank cap and independent scrutiny, and I’m not taking about the big audit organisations that everyone seems to accept. If the policy is to be adopted a mechanism to prevent TBTF sounds prudent but will it cope with the developments in technology? At this point I realise I’m asking too many questions and failing to provide answers but heh, I draw pictures.
The Tory part of the UK’s government may argue that The Bank of England (BoE) has been given more responsibility to prevent the issues raised by the Labour party. Who knows for sure? By the way, BoE guvnor, Mark Carney did have concerns with Miliband’s speech and everyone saw a dip in the share price. It’s a safe bet that any threat of change would send ripples through the markets. Improving competition, service, whilst reducing economic risk seems wise at a glance.
One thing that troubles me is what happens to us when the small bank that fails! Will our savings and investments go with it? The risk of failure will still be present, it’s the likelihood that will be affected but who carries the risk now? Note to self: Buy shares in the insurance industry but sell some cartoons first.
Other news is that Ed Balls wants to return to the 50p tax band for high earners to help with the deficit. Back in 2011 the Tories were prevented from dropping this to 40p by the Liberal Democrats. I’m surprised that Nick Clegg hasn’t jump on this news but then he’s been busy holding the dirty linen from a sexless sex scandal with a member who has the weight to bring a right downer to the party.
So what is Liberal Democrat and State Secretary, Vince Cable unhappy with? George Osborne’s recovery is too fast and it’s the wrong type. He’s not alone, Shadow Chancellor, Ed Balls also thinks the same but that’s to be expected from someone in opposition, not from someone in government. Then again it’s not news that Liberal Democrats and Tories don’t agree. Mr Cable in his wisdom believes the country’s pace of recovery should be more tortoise than hare and he’s probably right. Better keep an eye on the flood levels they might burst the banks.
Ed Miliband banking reform
Vince Cable in the News