Banking union. What does it take for us to learn?

Banking Union

Written by Luke Ming Flanagan

According to a recent briefing from the European Parliamentary Research Service titled Reforming The Structure of the EU Banking Sector, ‘between 2008 and 2012, around €1.5tn of state aid was used to prevent the crash of the entire financial system. Part of these funds was committed to keeping afloat financial institutions considered Too Big To Fail’.

What happens in these so-called Too Big To Fail banks (as we know only too well) is that any and all profits go to the shareholders, the private sector, while the losses are ‘socialised’, a lovely word with a rotten meaning – they’re simply transferred to the national balance sheets of the people. In Ireland’s case, and at the insistence of the European Commission and the European Central Bank, we were gifted with a debt of just short of €70bn, a debt that our children and their children will still be paying in 40 years.

To prevent such a calamity from happening again, the idea then should surely be to reduce the size of those monster banks while at the same time also clipping their wings.

Ye’ve heard of ‘financialisation’? No? That’s the new branch of banking, the often toxic financial market ‘activities’ that have grown exponentially over the last 25 years and which, thanks to soft regulation (almost non-existent regulation in Ireland’s case), almost collapsed the entire sector.

Ideally then what we need now is a) smaller banks and b) a clear separation between what we understand as traditional banking business (customers deposit their savings, banks lending/investing in the real economy) and the cowboys who want to play fast and loose, with all the above seriously and independently regulated.

We’re not getting it.

A recent study by New Scientist is worth a read, itemising just how much bigger some of these global financial institutions have become since the onset of the crisis that they themselves had caused. In the US, and according to data from the Federal Reserve (itself privately run, by the way – don’t be fooled by the ‘Federal’ element), just five banks (JP Morgan Chase, Bank Of America, Citigroup, Wells Fargo, Goldman Sachs Group) now control about 56% of the US economy – in 2007, that figure was 43%.

We don’t have that kind of data for the EU but in that same briefing I mentioned above, it states that ‘the ECB confirms that since 2010 (and in comparison with pre-crisis levels) market concentration has increased in both the euro area and the whole EU.’

This period is a golden opportunity for a major global authority such as the EU to rein in the power of the banks, to change the win/win rules of the game they’re playing with our future. The proposed Banking Union, now in its final stages and due to come into force on January 1st 2015, has missed that opportunity, doesn’t come even nearly close enough.

That particular skirmish may be lost; the battle, however, will continue.