The needs of the few

What has happened to financial services to create such a breakdown of trust and an almost total dereliction of responsibility and duty? How did it all come to this? It’s understandable that everyone is angry with the current state of financial markets. The future has never been more uncertain for countless millions of people worldwide than today with politicians and financial markets freewheeling in no particular direction and with increasing speed heading for the wall.

It is worthwhile politicians and regulators pausing to get some understanding of the complex and interrelated problems that the financial markets have to cope with, to get some perspective and try and find the right solutions. Kneejerk reactions to a catalogue of disastrous events will not solve the problems. Nor will any number of public investigations help. It’s more about first understanding what financial markets we want and need before looking at the whole mass of problems that are just dragging everything down.

Do we want a financial market that benefits society, a market for capital raising for long term sustainable economic growth and for full employment the population? Do we want a market that creates wealth and provides the ability to distribute wealth, enabling people to become financially successful, whilst generating taxes to provide top quality health care and an infra-structure, supporting happy and improving living standards?     

What is preventing the market from fulfilling the needs of society? For the financial markets are there to serve society, not to mock or fleece it for the material and greedy gain of a select few individuals. Firstly, we should question the current industry model for the risk rewards ratio, at both an individual and corporate level. We also need to question the relevance today of the creation single capacity in 1986 and its capability of meeting the needs of society now.

Though Big Bang has been an unqualified success for the City of London and proved a model that other markets followed and it was the right thing to do in 1986, it’s not necessarily the right thing for today. So should we change back to single capacity and lead a global charge towards a split between the wholesale and retail markets?

Mixing risk investments with retail banking is just wrong today and it’s been proven so. In 1986 there was no OTC worth talking about. Derivatives were exchange traded futures and options. The arbitrage and complex strategies we have today within single capacity banking make the temptation to use investor and customer assets too great. Clearly individuals and the Banks cannot resist the temptation. So if we can’t trust people and banks in financial services to act in the best interests of their clients’ then temptation has to be removed.

Splitting the banks up could begin to reassert trust and confidence by society in financial services. If not, the consumer will move to the new banks with respected trusted names that do not have the risks of an investment bank.

I know the fear is that global banks will leave our shores but I say that’s a risk worth taking, to show the world and its investors that the City is a sound and secure place to do business and that there are harsh penalties for breaking the rules. The resolution should be to rebuild the financial markets and put into place structures and practices that serve the needs of society. Never again should the needs of the few outweigh the needs of the many.