British Trades Union Congress Demands, Shake Up the Banks
September 9, 2012 • 11:44AM

Ahead of its upcoming convention, Great Britain's Trades Union Congress (TUC) released its program for reforming the banking sector which points to the need for separating retail and investment banking and calls for the formation of a state investment bank.

"Banks caused the crash," TUC General Secretary Brendan Barber said in a TUC press release. "Their problems are still driving the Eurozone crisis. They are still failing to provide the finance that Britain's productive sectors need.

"Yet the government is still tiptoeing round reform. Even the limited Vickers proposals are being watered down, and initiatives designed to kick-start lending or boost growth end up helping banks, rather than the real economy.

"That is why it is not just unions backing a radical shake-up. Proposals we make also find support among business leaders, consumer groups and even some ministers."

The banking reform manifesto calls for building a banking system that will "focus on the building of long-term, real economy value rather than on short-term high-risk/high-reward speculative activity." Highly critical of the Independent Commission on Banking, chaired by Sir John Vickers, the TUC charges that it does not go far enough and criticizes the fact that the government watered down the Vickers recommendations even further, such as "allowing complex investment banking products to be sold by 'retail' banks. Such moves also suggest that the proposed 'firewall' between retail and investment banks may not be strong enough, especially as it is likely that banks will be able to find ways to circumvent it with new products and services. It may be the case that only full separation will be able to truly ring-fence retail deposits and the payment system from speculative 'casino' banking."

The manifesto calls for new independent commission with a broader mandate which "should involve finance experts, trade unionists, mortgage holders, SMEs and other interested parties affected."

There is also a call for the "creation of a State Investment Bank" as "a publicly owned credit provider that supports the real economy." Including extending credit to small and medium enterprises, infrastructure, etc. it is suggested that the Royal Bank of Scotland, which is already 84% own by the government be converted into such a bank. The example of the German Kreditanstalt für Wiederaufbau is given, including a proposal to establish similar banks on a regional basis. Although there is a call for a Green Investment Bank, which could be folded into a state investment bank, such a Green bank should by no means be seen as an alternative.