CRESC - Scapegoats aren't enough: a Leveson for the Banks?

Since the start of the great financial crisis in 2009 researchers at CRESC have been arguing that there are fundamental defects in our financial system, and that these won’t be solved by short term hunting down of scapegoats. Now they have drawn on their research to demonstrate exactly this point about the LIBOR scandal. Politicians, bankers and regulators have responded to the scandal with the traditional Claude Rains defence: like Captain Renault, the character played by Rains in Casablanca, they are shocked, truly shocked, to discover that illicit gambling has been going on in the casino of the City of London. But CRESC research shows that the problems won’t be solved by firing a few top bankers, prosecuting a few white-collar criminals, or even by conducting an inquiry into the workings of LIBOR – necessary though all these are.

CRESC research shows that:

• The claimed economic benefits of the City for the ‘real’ economy are an illusion, the product of effective PR over the years by the City elite
• The PR offensive has been effective because the City has enjoyed unique privileges in the government of finance, and unique access to top policy makers
• The result is that the City is a web of markets proliferating increasingly complex and risky financial instruments that do little or nothing to promote welfare or efficiency in the wider economy.

Our researchers argue that:

• If there to be an inquiry it has to be on the scale of the Leveson Inquiry into the earlier scandal of phone hacking, with the power to uncover the cultures and institutions that persuaded City operators that they could operate with impunity.
• Even more important than an inquiry, our research argues that there is a need for a fundamental redefinition of the social and economic roles of finance. Banks must become public utilities with the duty to serve the wider economy, not players in casinos.

Andrew Bowman states “we have probably reached the limits of the current regulatory framework when the penalty is a £290m fine which equates to just 4.2% of Barclays pre-tax profit and is equivalent to 13 days of profit”.

John Law states that “talking about good and bad culture is simplistic and will limit any inquiry because cultures and structures go together, and we need to address the culture of finance via structural and organisational reforms which get to the heart of banking business models”.

Mick Moran states that “any inquiry needs to have a combination of judicial powers, a broad remit, freedom from government influence and a panel of investigators drawn from a wide range of interests in British society rather than the narrow interests of financial services”.

Karel Williams, states, “we need to set the finance sector’s contribution to the UK economy in context. During the six years before the financial crisis, manufacturing contributed more than double the tax receipts and employed 1.5 million more”.

CRESC discussion paper: Scapegoats aren't enough. a Leveson for the Banks?