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We are all bankers now

The part nationalisation of UK banks looks like it will become a global phenomenon with the US already moving towards this solution and the EU following suit if weekend reports are accurate. Is this a bad thing for the tax payer?

Despite what tax payers feel about greedy bankers and their reckless use of our money, the salvation of the banks is crucial to every society and to maintain them has to be the main priority. I have never been keen on nationalisation and interference by governments in free markets, in my view, is to be avoided but not at all costs, I now admit.

This global crisis is unprecedented and requires extraordinary action by government's worldwide to bring some order back into the markets and then hopefully the economy.

The billions and billions of tax payer's money put into banks will amount to trillions worldwide by the time the bottom is reached. This is sure to be funded by higher taxes and will have a detrimental economic impact on everyone. The economic downturn could last decades before the cost diminishes from the global economy.

Therefore an important feature of these government bailouts, are the terms! These terms will be important in bringing the tax payers some relief, providing the governments reinvest the returns and use them to support the economic recovery.

Clearly future dividends will be an immediate financial benefit and with the stakes involved, will be substantial over an extended time. These dividends should have a direct return to the tax payer and not become lost within government budgets, the same can be said concerning any interest earned on banking loans.

We must remember that banks are fundamental to society and they will certainly return to profitability very quickly.

The main problem in this financial crisis is credit and collateral values. The banking bailouts should be looked at differently to the economic policies and measures, which governments will need to take to inflate the economy, within their country but should also looked at by region and globally.

The government solution to ease credit between banks with guarantees is the real long term solution that will be noticed first in the high street. By putting more liquidity in the markets, the results should be positive and will bring a about normality in due course.

Banking business operations should also be a big factor in government terms and should demand more board accountability at a collective and singular level. Hopefully boards will become more prudent and revert to a more traditional and conservative approach to banking business.

I am not keen on civil servants on the board but may be qualified individuals acting on behalf of the government and you and me would not be a bad thing.

We should be careful about remuneration caps, as we need to attract top quality people but in these times anything less than a cap would be unacceptable to tax payers. So we need to ensure there is an attractive and transparent compensation structure, which attracts quality people and rewards success. This should be a direct line to the realised profitability of the bank and the share price.

Now we are all in the banking business, we should be taking a closer watch on banks and become more vocal on how this industry is being run. A ‘Minister of Banks' with responsibility to look after investor interests should be put in place, providing a visible link between the tax payer and the banks board.

Banks have shot themselves in the head, with the regulators providing the gun and the government the bullets. It is now up to the tax payer to understand more about banking and demonstrate the ammunition that shareholders have, after all, we're all bankers now!      

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Gary Wright

Gary Wright

Analyst

BISS Research

Member since

19 Sep 2007

Location

London

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This post is from a series of posts in the group:

SEPA and European Payments

The Single Euro Payments Area, the Payments Services Directive, the Eurosystem, TARGET2, STEP2, the Euro and related matters.


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