With its high reliance on financial services, can the UK economy survive the apparently never-ending series of banking scandals? I sometimes doubt it.
In the last few weeks alone we have seen: Barclays admitting to manipulating the Libor (London Interbank Offered Rate), both to disguise its true cost of borrowing and, apparently, to overcharge customers; investigations into inappropriate selling of interest rate swaps to small businesses; and the revelation that HBOS prevented the directors of Farepak from segregating customers' funds, as a direct result of which the customers lost most of their money. Incidentally, some American shareholders have veen suing Lloyds TSB for their reckless takeover of HBOS.
All of these actions were immoral and some of them were possibly illegal. The fact that some of them were possibly nt illegal reflects badly on our present legislation. This sort of behaviour must stop!
The implications for the UK economy (and quite possibly for many other economies) are potentially disastrous. The manipulation of the Libor could expose Barclays and many other banks to litigation on a vast scale. It could possibly destroy some of the world's largest banks - and this time no government could afford to prop them up.
The other two matters do not in themselves pose a systemic risk to the banking system but they do re-emphasise the rotenness of the system and, by creating distrust, could make it even more difficult for banks to recapitalise in future.
What can we do about it? We should (and the government has recognised this) reduce the country's reliance on financial services, but this will not shield us from a melt-down of the banking sector. We must also do all we can to stop this misbehaviour by bankers by disincentivising immoral, illegal and reckless behaviour. For too long bankers ans others in financial services have held the UK to ransome, saying that if we try to curb their pay and bonuses or regulate their behaviour more closely, they'll simply go elsewhere. We must call their bluff - no-one in future is going to wish to deposit their money in these crooked banks, nor will they want to invest in them. The bankers at Barclays have done very well over the last few years but their shareholders haven't.
If the UK can introduce legislation which makes banks safer for customers and shareholders, we'll have a banking sector which has no difficulty raising funds. So what if the crooked and greedy bankers go elsewhere? We're better off without them and there will be plenty of honest and less greedy people willing to take their places.
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