Sunday, 11 November 2012

The labour movement and the banks

Given the scale of financial and political support the banking sector has received in the past few years, it's surprising just how little change the labour movement (both Labour and the TUs) has managed to demand of it. I am sure that this is at least in part because when the crisis first hit the principal concern was simply to keep the system working. We had a Labour government in power and - rightly - the biggest issue was keeping the financial system on its feet.

Following the recapitalisation of the UK's banks, we did embark on a reform effort but, in retrospect, it looks like we missed the opportunity to push further. There were big changes in the governance of individual banks (ie board members forced out & replaced), but the reforms of corporate governance in the banks as a whole were limited, and very much cut with the grain of existing practice.* It was a largely technocratic exercise. Given what Bob Diamond was paid prior to getting the boot, I think we can safely say that pay 'reform' is largely cosmetic, for example (make it more long term, pay is shares, yawn).

Similarly, there was no serious challenge to the structure of the UK's banks - either the number of banks, or whether universal banks are an acceptable model (these are both things I haven't taken a view on because I know far too little to say anything sensible). Labour has subsequently in opposition toughened up its position significantly but the parliamentary wing of the movement is, currently, unable to do much with this.

But what if we get another opportunity? Suppose that the banks again face the need to raise capital quickly. They could turn to taxpayers (ie further Government bailout) and/or shareholders (right issues). If it is the former then I would hope that the parliamentary party makes the argument that there must be a quid pro quo - if the taxpayer is funding the bill then there must be a pay freeze, and those banks requiring support should commit to split retail and investment arms completely.

But the same holds if the banks had to turn to shareholders. The asset managers, remember, are just the middle men. Effectively they will be tapping up our pension funds. In such a scenario I think the TUs ought to make the point very loudly (and quickly!) that working people's retirement savings would be providing support for the banks and that, again, something would be required in return. Unions could get into the trustee-asset manager link and make the case that this is not a decision the asset management industry could make alone. If you want our money you need to commit to reforms.

Who knows what will happen with the banks. At the moment things look stable, though the sector has been hit be scandals like Libor, PPI and money laundering. But if things got tight again in terms of capital there would be a window in which the movement could influence the structure of the industry. Just a thought.

*As I've written previously, arguably the more interesting overhaul has occured within financial regulation. A much more open-minded discussion (eg Turner Review) has taken place there than within the corporate governance microcosm, which never misses the opportunitry to pat itself on the back about how great 'comply or explain' is. The regulators are now more proactive, and looking at different issues. The result, I believe, is that in the UK-listed banks shareholders will basically get to approve things that regulators have already decided are OK. Shareholder primacy on paper only.   


Catherine Gannon said...

Aren't we between the proverbial rock and hard place ion the sense that we are now so dependent on the City and finance for our economy that all political parties are afraid to come down hand with change and regulation ? No easy answer but worrying times.

Tom Powdrill said...

True, and there's no sense picking a fight for the sake of it. But if the banks needs recapitalizing again I think we have to ask why the likes of Bob Diamond got any bonuses etc, and we ought to look at the structural issues. I don't think it's acceptable to recapitalize them again without putting some conditions on the cash.