Academic journal article Nottingham Law Journal

The Pursuit of "Socially Useful Banking" in Twenty-First Century Britain and Exploring Victorian Interactions between Law, Religion, and Financial Marketplace Values

Academic journal article Nottingham Law Journal

The Pursuit of "Socially Useful Banking" in Twenty-First Century Britain and Exploring Victorian Interactions between Law, Religion, and Financial Marketplace Values

Article excerpt

BACKGROUND AND CONTEXT

In this second decade of the twenty-first century, people of Britain have been warned that the "nice decade" is over. (1) It is becoming clear that from the time of considerable consumption which preceded the 2007-8 financial crisis there will now follow a lengthy 'age of austerity'. The years preceding the financial crisis did not simply precede it of course, and out of control and wide-spread 'debt finance' on the part of financial institutions exposed by the sub-prime mortgage crisis in the US has had repercussions across the globe. In the US itself this can be seen in the failure of a number of very prominent financial institutions, such as Bear Stearns and Lehman Bros. Closer to home the effects of over-extension, unrealistic investment strategies, and also the increasing interconnectedness of financial systems across the world, can be seen clearly in the continuing Eurozone crisis, with increasingly apparent world-wide lasting consequences. Indeed, this is looking set to precipitate a "lost decade" for the global economy. (2) For the UK itself, the effects of this "first crisis of globalisation" (3) have been many and manifold. In illustrating the increasing global reach of disruption in financial systems, it was Northern Rock's request for Bank of England assistance in 2007--as a result of difficulties in its own financing as a direct result of the US sub-prime crisis --that marked the arrival of the financial crisis in the UK.

This "first crisis of globalisation" very quickly precipitated--domestically and on the international platform-reflection on what had allowed it to happen, and debate on reconfiguring financial sector regulation in its aftermath. (4) In the UK, alongside the political manoeuvring away from 'debt finance' through a combination of austerity measures and attempts to actually rebalance the economy, there has predictably been close focus on rethinking the way that financial institutions are structured and capitalised in order to reduce systemic risk. (5) As a new regulatory landscape for banking emerges, much is being said about tightening up capitalisation requirements and prudential considerations involved in loan and particularly investment finance. As steps are being taken to promote robust banking for the future, investment banking is becoming once again extremely lucrative and generating huge rewards for bankers (6), with the issue of bankers' bonuses being most controversial in the case of institutions owned outright or substantially by the State, by virtue of being deemed "too big to fail". (7) But elsewhere in banking practice there are also concerns about a perceived lack of willingness on the part of bankers actually to engage in lending. The issue of lending is at the heart of Government insistence that banks "explicitly recognise their responsibility to support economic recovery" (8) and, as the crisis revealed, practices of securitisation can make these different limbs of banking extremely difficult to separate out from one another. (9)

Here, the emphasis given to conduct in banking, both in regulatory discourses, and increasingly in more 'popular' ones, reveals widely-held views that the financial crisis exposed much that is manifestly wrong with its operations, and much that is incompatible with expectations upon it for rebuilding of the economy. From this, some have already drawn conclusions that the opportunity for sufficiently far-reaching reform has not been taken up, and is unlikely to be done (10), despite very incisive criticism of banking from regulators. In 2009, Lord Adair Turner, the Chairman of the then City 'watchdog' the Financial Services Authority (FSA), famously castigated "socially useless banking" characterising institutions which had become too swollen and too focused on profit-making to be beneficial for society. (11) Notwithstanding Lord Turner's subsequent modification of this to "economically useless" (12) banking, and before the House of Commons Treasury Committee in 2011, then Barclays Bank Chief Executive Bob Diamond offered an altogether different take on the industry and its obligations. …

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