Scottish ministers urged to revolutionise economy with banking for the common good
March 10, 2016
As if a microcosm of the rest of the UK, Scotland suffers acutely from the UK’s highly concentrated and unreformed banking system. Businesses struggle to get credit, branch closures are leaving communities abandoned, and extractive investment banking arms hoover up retail profits, funnelling billions into nuclear weapons, environmentally disastrous projects, and human rights abusing regimes.
Banking is even more concentrated in Scotland than it is in the rest of the UK, with RBS and Lloyds (which owns the Bank of Scotland) accounting for more than 70% of small business banking. In the event of another financial crisis, Scotland is staring down the barrel, reliant as it is on just two massive, shareholder-owned banks.
Once renowned as the home of the stoic and dependable bank, Scotland now hosts a bloated, self-serving financial services industry, designed, regulated and run solely to extract profits from society for its staff and shareholders – sucking the life out of the economy and society as it does so.
But banking doesn’t have to always be this way. In 2013 the Scottish Government published “Sustainable Responsible Banking”, in which it set out a strategy to “fully repair the appropriate relationship between the banks and the society in which they operate,” insisting that “where the Scottish Government can act, it will.”
Heeding this pledge, Friends of the Earth Scotland have today released a proposal, produced in collaboration with Move Your Money, the New Economics Foundation, and the Common Weal, urging Scottish ministers to make good on that pledge, and to revolutionise Scottish banking for the benefit of the common good.
The proposal builds on extensive evidence from around the world of the benefits of stakeholder banking models, and describes how the Scottish parliament could establish a powerful, democratic and socially useful banking system – without needing further devolution of powers from Westminster.
All around the world, networks of locally focused, socially oriented stakeholder banks have been shown to increase productive and sustainable lending, enhance local economic development, and to mitigate the impact and likeliness of financial crises.
In addition, National Investment Banks have been closely associated with higher economic growth, greater financial stability, and increased investment in infrastructure and environmental projects.
The proposal, “Banking on the Common Good”, combines best practices across both of these systems to advocate for a network of locally-focused stakeholder banks, capitalised by a Scottish National Investment Bank.
This new banking infrastructure would be mandated by a social remit to invest patiently and sustainably, particularly in SMEs, jobs and sustainable infrastructure, boosting local economies and improving local economic resilience.
Only last week, the former Governor of the Bank of England Mervyn King warned that “without reform of the financial system, another crisis is certain… Only a fundamental rethink of how we, as a society, organise our system of money and banking will prevent a repetition of the crisis that we experienced in 2008.”
Today’s proposals, launched at the Scottish Parliament in Holyrood, sets out a clear path by which the Scottish Government can start to achieve this. A banking system that is socially useful is not a fantasy, and Scotland has the powers to build it now.