Wednesday, 19 December 2012
A new source of funding from banks - a dangerous precedent?
However, Banks are businesses and like it or not they now lay at the dead centre of a capitalist economy, controlling the flow of money from savers to borrowers and, increasingly, from central governments. They have their own balance sheets, regulations and shareholders to report to.
Yet in fining UBS $1.6 billion, the Governments have found a new substantial source of revenue. After all in the US the money is going straight to the US Treasury and David Cameron has changed the game here to in order that the FSA does not become too rich. The money will go to the treasury, other banks too are going to settle soon, such as RBS - so there are more fines to come and collectively it could make a small dent in the deficit.
It's great politics too, bashing evil bankers and getting money back for ex-servicemen and schoolz'n'ospitals. There is not much incentive to stop the party, in fact they could beef up the regulatory powers and try and make this a regular thing.
In doing this, we further cripple an already busted market. banking is shrinking at a quick rate globally, volumes are low, transactions non-existent; RIF (Reduction in Force) is all the rage. In many ways this is good news, yea to smaller banks, but as an industry its a disaster and for Government to be extracting huge sums on top of new banking taxes already imposed, the push can be too much.
The economy can't recover if the transmission mechanism for money supply is broken. I doubt the Governments' can help themselves though when they see new sources of revenue with positive voter appreciation attached to it.