The government has done almost nothing to address the fundamental causes of the financial crisis
25.02.2014 EMBARGOED UNTIL 00.01AM, 26 FEBRUARY 2014
- Report outlines damaging practices continuing in RBS, HSBC, Lloyds Banking Group and others
- Report release coincides with RBS announcement that it is to axe 20,000 jobs before it hands out bonuses to senior staff
- Significant reforms to the banking industry are needed
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As RBS axes 20,000 and prepares to hand out bonuses to its staff, a new paper released today [Wednesday] by the Centre for Labour and Social Studies (Class) examines the UK’s financial sector and reveals that the government has done almost nothing to deal with the fundamental causes of the financial crisis. The paper chimes with a Class-YouGov poll in November, which found that 65% of people are not confident that enough has been done to prevent a repeat of the crash.
The paper, Banking in the public interest: Progressive reform of the financial sector, by Professor Prem Sikka, a banking expert for the University of Essex, reveals that the organised gambling and anti-social practices undertaken by the banks, which undermined the stability of the entire economy, are continuing. These practices include:
- Money laundering – HSBC was fined $1.9 bn (£1.19bn) in 2012 for facilitating money laundering by terrorists and drug kingpins.
- Tax avoidance – RBS has stashed some £25bn in tax havens
- Insider trading – RBS and Société Générale, JP Morgan and Citigroup were fined €1.71bn (£.142bn) for fixing the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR).
- Reckless risk-taking – For the £143 billion of mortgages on the books of Lloyds Banking Group, the bank holds just £314 million of capital. This means that Lloyds has lent some 455 times the capital earmarked to absorb the losses.
- Enormous bonus packages – At RBS, eight senior executives collected £21 million in bonuses in 2013; in fact, 95 collected more than £1 million each.
- Profiting from selling abusive products - such as Payment Protection Insurance
The paper also outlines a series of recommendations to make the banking system more democratic and less anti-social, including:
- A legally enforceable separation of retail and speculative banking, together with withdrawal of limited liability from speculative banking.
- The enacting of legislation to ensure that no retail bank, insurance company or pension fund is able to provide any finance to investment banking without express approval from those directly affected.
- The prevention of retail banks from launching any financial product without express approval from the regulator. All evidence provided to secure such permission should be publicly available.
- The publication of the terms and conditions that surround executive renumeration packages, and a binding vote on the same by employees, savers and borrowers
- The end of auditing by private accountancy firms and its replacement with audits by a regulator on a real-time basis.
- Ensuring banks act as part of the local community, with obligations to maintain branch networks as a quid pro quo for deposit taking licences
- Public availability of banks’ tax returns
Commenting on the paper, Professor Prem Sikka said: “the government has made noises about addressing the problems of the financial sector. But as this year’s bonus season demonstrates, in practice very little has changed. Financial institutions have been allowed to continue the reckless gambling and anti-social practices that devastated the economy in 2008.
The financial sector impacts upon every part of the British economy. The government must stop evading the necessary task of implementing significant reforms to the banking industry.”
– ENDS –
Notes to Editors:
1. The Centre for Labour and Social Studies (Class) is a new think tank established in 2012 by Unite the Union, GMB and the Institute of Employment Rights to act as a centre for left debate and discussion and has the growing support of a number of trade Unions including ASLEF, CWU, FEU, GFTU, NUT, PCS, PFA, TSSA, UCATT, MU and NUM. Originating in the labour movement, Class is working with a broad coalition of supporters, academics and experts to develop and advance alternative policies for today. http://classonline.org.uk/about/panel
2. A copy of ‘Banking in the public interest: Progressive reform of the financial sector’ will be available here from 26 February: http://classonline.org.uk/pubs/item/banking-in-the-public-interest.
3. A copy of the poll can be found here: http://classonline.org.uk/news/latest/new-class-yougov-poll-released-today-shows-that-most-people-are-not-benefit
4. The author of the paper:
Prem Sikka is professor of accounting and director of the Centre for Global Accountability at the University of Essex. His research on accountancy, auditing, tax avoidance, tax havens, corporate governance, money laundering, insolvency and business affairs has been published in books, international scholarly journals, newspapers and magazines. He has appeared on radio and television programmes to comment on business matters. Prem has advised and provided oral evidence to various parliamentary committees.
For further information, articles, interviews or media requests please contact Ellie O’Hagan on email@example.com or 020 7611 2569.