Royal Bank of Scandal Reaches New Low

The Tomlinson Report into the practices at the Royal Bank of Scotland, compiled under instruction from Vince Cable's Business Department, has been passed to the Financial Conduct Authority we read this morning. It will apparently demonstrate that the bank that we saved and which we own, had gone beyond being parasitical on the businesses of this country to actively working to destroy them and profit from their demise. It has long been clear that the financial sector in this country is sucking the lifeblood out of our economy, but the fraudulent nature of RBS's business activity takes us to a new level of revulsion.

Since the crisis of 2008 banks have found it more difficult to generate huge profits that were possible at that time. They have looked for ever more ingenious ways to exploit their customers which has given rise to a continuing tale of scandalous mis-selling, first selling insurance against potential redundancy to employees who did not need it, then selling financial products known as swaps to small businesses who had no need for them or understanding of them.

But the latest scandal to be revealed in the Tomlinson report is another step down the ladder into the slough of public opprobrium. It relates to one part of the bank known as the Global Restructuring Group (GRG). RBS's customers who got into difficulties paying back their loans were sent to this part of the bank apparently to receive help with turning their businesses around. Instead they were deliberately charged high fees so that they would become bankrupt, enabling the bank which had inside information to be the first on the scene to pick up their assets cheap. This is a shocking allegation that will now be investigated by the Financial Conduct Authority that has received a detailed report on the activity from the Business Innovation and Skills Department.

It has been clear for years that the banking sector in the UK is pernicious and not serving the real economy, but to find that it is actively working to destroy the small businesses that we need for our economy to thrive is another shock. It undermines yet again the suggestion that what we need is a change of culture in banking. What we actually need is significant structural reform and a much stronger role to be played by politicians in controlling what is possible in this most important sector in a capitalist economy.

Here is a simple idea which I have suggested before but which seems particularly relevant today: the Royal Bank of Scotland should be broken up and turned into a system of local community banks on the model of the German banking system which has done so much to support their Mittelstand - the layer of small and medium-sized enterprises that is the engine of the German economy. Each local bank could include local business people and others with an understanding of local economic needs on its board. It could still lend at interest but do so in a way that served its local economy and built its resilience rather than actively destroying businesses.

That a bank would work to undermine its customers for its own advantage is shocking and probably fraudulent, but that this activity would be undertaken by a bank that owes its existence to public support and is 80% owned by the public is, quite frankly, unbelievable. Of all the politicians who have been in a position to act on the disasters of the British banking system, Vince Cable has been the most disappointing. He clearly has the knowledge about how to do the right thing so we can only assume that he does not have the power within the coalition. Let us hope that this latest and most shocking scandal gives him the authority to take the action our small businesses so desperately need.

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One Rule for the Rich?

My suspicions were aroused when the credit-rating agencies started criticising the capital holdings of the Co-operative Bank. After all, any bank is effectively bankrupt at all times, so pointing the finger of accusation just becomes a self-fulfilling prophecy. I put my suspicions down to paranoia, but now that the BBC's Robert Peston is starting to make similar noises about the Nationwide I am beginning to wonder whether I wasn't suspicious enough.

As Peston notes, the response by many to the disasters and calumnies of the banking corporates has been to look in the direction of mutual ownership. I have called for the Royal Bank of Scotland, rather than being sold back to shareholders, to be broken up into a system of local community banks, owned by those in the local economy who would uses their services, and with boards made up of local businesspeople, councillors, and citizens. Green MP Caroline Lucas made a similar point during her intervention in the banking debate earlier this week.

The logic is clear: if we, the public, provide the guarantee that allows the banking system to have credibility while operating in a state of permanent insolvency then we should have control over how it directs credit and should also see the profits from banking invested for public benefit not private gain. The redistributive effects of such a shift would be massive, which may be why the commentators are now portraying mutual financial institutions as unreliable.

Yesterday's suggestion from credit-rating agency Moody's that the situation is improving for the commercial banks is the final piece in the puzzle. Since the problem for both the Co-operative Bank and the high street banks is that they are holding commercial property assets that have massively lost value since the crisis, it simply cannot be right to say that their credit ratings are moving in opposite directions, at least not if you take this as an independent indication of financial health, rather than a piece of political propaganda. The rules set by the Basel Committee as to what counts as a reliable form of capital are similarly prejudicial to the interests of building societies, whose assets really are safe as houses and far less subject to risk than the complex financial instruments counted as assets by the banks. Nationwide boss Graham Beale made a similar point in an interview with the FT recently.

The inconsistency with which mutual and shareholder-owned financial institutions are being treated by financial commentators leads to an unsavoury conclusion. Could it be that, having used austeria to attack public services and the working conditions of those employed throughout the economy, the defenders of capital are now using it to destroy the vestiges of the co-operative and mutual economy?
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The Tories: Good for Your Health?

In his inept and inarticulate way, George Osborne is doing his best to portray the Tories as the public sector's friend. Nurses and teachers are encouraged to forget the fact that he has a large knife in his back pocket and listen to his honeyed words about them being able to enjoy greater control.

The co-operative economy was and still is about ownership and control. We still own the Co-operative shop, the Phonecoop and the Nationwide Building Society. Our votes decide who is on the board and, broadly, what policies the businesses follow. Of course we also, in a broad and indirect sense, own the schools and hospitals which George Osborne is suggesting can become co-operatives. While they remain in the public sector, our votes can make a difference - if a far too indirect one - to how they function and the services they offer.

In the UK the strength of the co-operative movement has been on the consumer side, yet the co-operatives George Osborne appears to be suggesting for the public sector will be worker co-operatives. If the Tories meant this, it could mean that your surgeon or job counsellor would decide what operation you needed or how long you could claim benefit before you were struck off the list.

But of course he does not mean it. This is not a proposal to empower public-sector workers, but a cynical first step on the road to the privatisation of the health service. With US corporations eager to take over hospitals and clinics - and pharmaceutical corporations already dominating the policy agenda (viz. the recent massive waste of money buying unnecessary and ineffective anti-virals) - we should be very cautious indeed about responding warmly to Osborne's weasel words.

Many of our public services began as mutuals - working people joining together to pool their resources and provide each other with health and education when the state did not. Especially in health, these local and empowered solutions were swallowed up into the National Health Service, and the mutual impulse and local accountability were lost. This history offers a sense of the potential of co-operatives, but it would require a much greater shift of political power than the Tory proposals countenance.

This is the first attempt during this election campaign for one side to claim the laurels of the co-operative movement, which has drawn increasingly positive attention since the advent of disaster capitalism. But if it was the private sector that screwed up so badly in recent years, why is mutualisation being suggested for the public sector? George Osborne might gain considerably more credibility with the co-op movement if he gave support to the campaign to remutualise the Royal Bank of Scotland and introducing financial support for employees who wish to take over their own workplaces, rather than offering public-sector workers a share in schools and hospitals which his own policies will make unmanageable Tweet