mps urge government to separate casino banking from retail banking
CSM Chair tables Early Day Motion, backed by Treasury Committee chair
There has been a fresh call in Parliament to reform the UK banking system. The chair of the Christian Socialist Movement (CSM), Alun Michael MP and CSM member John McFall MP, chair of the House of Commons Treasury Committee, have tabled an Early Day Motion (EDM) urging the government to separate speculative casino banking from traditional retail banking. The EDM argues that strong regulation is essential but that this more radical measure is needed to protect UK retail depositors from future massive losses from casino banking.
Their action comes on the first anniversary of the Government’s rescue of UK banks, and as CSM, whose members include the Prime Minister, Gordon Brown, calls for action to ‘stop the banks gambling with our money’. CSM’s campaign urges the government to not only strengthen regulation but to implement a complete separation of speculative investment (‘casino’) banking from traditional retail banking in the forthcoming banking legislation the government is to put to Parliament.
Launching the campaign, CSM chair Alun Michael MP said:
“The current international banking crisis has done enormous damage to jobs and businesses in Britain, to the UK’s public finances and to hundreds of millions of the world’s poorest people. Our Government has taken the lead internationally in dealing with the crisis, but the consequences will still blight a generation and the hardest hit will be some of the poorest people in the world. That is why CSM is calling for action to ‘stop the banks gambling with our money’ and to ‘separate as well as regulate’ UK banks to help protect our people against this sort of banking crisis in the future. There must be no return to business as usual. It’s not just an economic issue but a moral one. We want a similar approach taken worldwide and for the UK to lead by example.”.
Outlining his decision to support the early day motion John McFall MP, Chair of the Treasury Select Committee said:
“I strongly welcome the government’s decision to introduce much stronger regulation in banking including new capital requirements. However, regulation will never be 100% successful in always preventing massive losses on speculative casino- type investment banking. So an ever present danger exists when banks combine this casino banking with traditional retail deposits which are rightly guaranteed by the taxpayer. Without a safeguard for the retail side, massive losses on the speculative casino side may once again threaten UK retail depositors. That would mean UK taxpayers would have yet again to pump in tens of billions of pounds to rescue such a combined bank. We cannot allow this to happen again.”
CSM’s campaign comes during a period of intense debate in the UK, Eurozone and US about the banking legislation needed to help prevent future banking crises. The EDM is attached below as Appendix 1
below. Some quotations, on the subject of separating casino investment lending from traditional retail banking, from leading figures in Banking, are in Appendix 2
also below. A brief summary of some of the main arguments, for and against, can be found in Appendix 3.
See also a CSM article
on the subject.
Note to editors:
CSM is a large group of Christians affiliated to the British Labour Party, including over 40 members in the House of Commons and House of Lords including the Prime Minister Gordon Brown and former Prime Minister Tony Blair. As of January 2009, its new Director is Andy Flannagan.
Early Day Motion
Separation of speculative and retail banking
“That this House notes the enormous damage that the international banking crisis has done to jobs, businesses and public finances and to some of the world’s poorest people; recognises the substantial and continuing resources provided by taxpayers to support banks; acknowledges that an important part of this crisis was caused by a number of traditional deposit-taking retail banks becoming involved either directly or indirectly with speculative, casino-style, investment banking; welcomes the support of all political parties for continuing to provide a government guarantee for retail deposits held in banks; notes also that when banks are systemically important it is the taxpayer rather than the shareholder who carries the ultimate risk; supports much stronger regulation of banks to help prevent such a crisis in the future; recognises that, given constant financial innovation, regulation on its own will never be completely successful in always preventing massive losses on speculative casino-type investment banking; acknowledges that in a bank that combines speculative investment banking and traditional retail banking that massive losses on the speculative side would threaten its retail deposits thus necessitating taxpayers to rescue such a combined bank; therefore calls on the Government in its forthcoming banking legislation to separate speculative casino banking from traditional retail banking and, as well as leading by example, to encourage a similar approach internationally.”
“It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure. Something must give.”
Mervyn King, Governor of the Bank of England, at the Mansion House, 17 June 2009
“Deposit insurance and central bank liquidity facilities are properly confined to deposit taking institutions. It is, after all, those institutions that remain the backbone of the financial system. …In my view it is unwarranted that those same institutions, funded in substantial part by tax-payer protected deposits be engaged in substantial risk-prone proprietary trading and speculative activities that may also raise questions of virtually unmanageable conflicts of interest.”
Paul Volcker, former Chairman of the US Federal Reserve, Chairman President Obama’s Economic Recovery Advisory Board (PERAB), to the Institute of International Finance, 11 June 2009