Monday, 13 October 2008

Holding the government to account...

. It is unclear what the specifics of the deal will be to recapitalise RBS, HBOS, Barclays and Lloyds TSB. It does look almost certain that more money will be involved than was initially thought and that at least in the case of RBS and HBOS the majority of shares will be ordinary shares, not preference shares.

Obviously from the point of view of this blog this will be a good thing but only if the government exercises its power as it should and does appoint board members. This will obviously dismay some but to me it is a matter of principle that the government should exercise this right; of democratic principle as a matter of fact. Why should the government, and by default the taxpayer, be subject to restrictions that would apply to no other investor?? Something that our champions of the market should perhaps reflect on.

It is worried that this will prejudice the government as a regulator. Another way you may look at it is that the government will be in much more powerful position as a regulator due to it's presence on these boards. The other concern is that banks will now be forced to lend to people who are a 'bad proposition' perhaps even, as I rather dryly suggested, other banks. Realistically the chances of any bank, government-backed or otherwise, taking on new debt at the current moment is slim but the reality is that banks do have social obligations and they do need to face up to them. I am not for one second arguing they should take the place of government and provide a safety net but it is in their interests not just to provide credit but meaningful support to the customers they give it too in terms of advice and any necessary tools to aid them in managing their finances.

If the government does not go ahead now and take these seats then it needs to be us that calls the government to account for not doing so; furthermore we should now be pushing the case that the government should use this position to fundamentally change the way banking works. Calls to curb executive pay are headline grabbing and right but reform needs to go much deeper than that to last. My suspicion is however that this government is far too timid to carry through a radical reforming agenda...we shall wait and see.

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