Thursday, 12 August 2010

Getting the banks under control

Last week the major high street banks between them announced combined bumper profits of over £8 billion for the first six months of this year. A different statistic showed the other side of the equation. Four thousand businesses were forced into liquidation in just three months as the banks horded the money for their own bonuses rather than lending it to hard pressed businesses trying to generate real wealth for the country.

This can’t go on. The banks have got to learn that they can’t just go back to the way they behaved before the financial crisis. The bonuses they were paying themselves were totally out of control and divorced from reality. So much so that they had to be bailed out by the taxpayer because all of them had become “too big to fail.” So a first step is to look at ways of breaking them all up again so they are smaller and could just go bust without anyone really bothering. That way, you encourage some much needed responsibility in this wayward industry.

Second, if we want to rebalance our economy away from banking towards wealth creating industries, then we must also rebalance the law. There is only one way out of this recession and that is through enterprise. We need talented individuals to have a go, take risks and try to turn new ideas into industry and business. But an integral part of enterprise is risk and how the law regards risk is important.

Earlier this summer I was one of the twenty MPs to be given a chance to introduce a Private Member’s Bill. Private Members Bills are a way of introducing legislation through parliament but outside of the government agenda. Individual MPs draft their own laws on issues they think are important and must then win support for them from across the political spectrum.

My Private Member’s Bill has the not so catchy title of the “Secured Lending Reform Bill.” At its heart is a simple premise. If an individual or business offers a bank a charge over their assets, then they have a special right to expect that bank to behave honourably. Among those four thousand businesses shut down by the banks in the last three months will be cases where hard working, conscientious people had offered their home as security to a bank in order to secure support. But having made this extraordinarily generous gesture they currently have no real protection under the law. Banks can and do enforce their security recklessly and prematurely, without regard for either the entrepreneur or their other unsecured creditors.

So my Private Member’s Bill would rebalance the law, making it harder for banks to enforce their security and throw people out of their homes. It will encourage and reward real enterprise and might well mean that the banks have a little less money left to waste on their Ferraris which is no bad thing.