Matthew Oakeshott writes in Liberal Democrat News:
Banks are just like water companies. If they block the money pipes to every business and household, or pollute the reservoirs, the economy chokes and dies.
He reminds us that he and Vince Cable warned, before the 2007/8 crash, of the insanity of 120% mortgages and the boom fed by borrowing. Gordon Brown, Ed Balls and the City were enamoured of "light touch" regulation. (The same could be said of George Osborne and David Cameron at the time, though they do appear to have seen the light now.) It was really "don't touch" regulation.
There will be no green shoots in the British economy until we make the banks turn the water back on for sound small and mid-sized companies without penal connection charges and running costs.
Lord Oakeshott advocates the full nationalisation of RBS in order to force it to do its basic job. But that seems an extreme option at this stage, since competition may soon cause the high street banks to think again. Michael Robinson, in the second instalment of "Fixing Broken Banking" on Radio 4, expresses the idea that a national cure may be obtained through local action. In particular, he highlights the success of Handelsbanken of Sweden in setting up a hundred local branches (such as Wigan's) in Britain which have returned to the traditional practice of the local bank manager making decisions based on his or her judgment and local knowledge.
The UK banking model of a central program making all the lending decisions based on credit scoring tables, with local staff having to make their branches pay by selling financial products, has been shown to be unsound. There has to be a return to face-to-face banking.
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