Jul 02 2012

FT on UK banks: we are seeing the financialisation of the financial sector

Posted by: Nick Shaxson in: Thoughts

A fantastic article by Jonathan Ford in the Financial Times, looking at the appalling failings of UK banks. Its summarising paragraph says:

For a country that constantly extols the virtues of its large and prosperous financial sector, Britain can sometimes seem curiously inept at providing basic banking services.

There is the ‘rolling barrage of mis-selling scandals,’ the recent Barclays Libor scandal, the monstrous charges, the endless conflicts of interest, the current half-collapse of the RBS payments system, and so on. Unfortunately it’s subscription-only, so I can’t reproduce much of it, except for to provide a couple of choice quotes, such as this one:

It’s a bit like discovering that the vicar not only runs a casino but controls the roulette wheel from a hidden pedal in his pulpit.

Indeed. He makes another savage but apt diagnosis:

But regulations devised to mitigate these problems do not address a key underlying cause: the transformation of our banking culture as our high-street banks have been taken over by investment bankers.”

There is a significant and growing body of academic literature that talks of the ‘financialisation‘ of the non-financial sector: that is, when firms stop focusing on real productivity – working out how to produce better and cheaper widgets and so on – and focus instead on extracting financial returns. As has been revealed in many studies of private equity, for instance, the focus on financial returns at the expense can be extraordinarily harmful.

But ‘financialisation‘ is usually described to describe the cannibalisation of productive enterprise by financial engineers. What we are seeing in the UK (and in the US), as Ford’s article so aptly describes, is — although Ford does not spell this out — the financialisation of the financial sector itself. The casino takes over the utility, and the utility gets bled dry, and quality, customer service and good things like that fall out the window.

This all has to be pointing towards the end of some kind of road. What comes after that, when the road runs out, is anybody’s guess.

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[…] may well be onto something here, as this Bloomberg story points out, and as my last story notes. And the CRESC report gets to the point: “If there is to be an inquiry into the Libor and […]

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