Thursday, 17 September 2009

A socially relevant banking system

It is clear that the G20 meetings of Heads of Government and Finance Ministers are becoming a useful forum for tackling the banking crisis. Sharing ideas and experience is essential for the development of a new legal framework for the banking industry. The framework must walk a narrow line of preventing the kind of extreme risk taking that caused the financial crisis, without stifling the banking sectors ability to innovate.

What is clear is that banks can no longer be seen as an offset part of society, answerable to no one. If banks are so important to a Country that they cannot be allowed to fail, it is essential that they are not seen to be performing ‘Socially useless activities’ as Lord Turner, Head of the FSA put it.

It is a good sign for the Banking Industry and for all of us, that those who work in the Sector have been soul searching and are beginning to see the need for a socially relevant industry. Speaking in the FT over the weekend the Chief Executive of Mitsubishi UFJ Financial Group, japans largest bank, said “if we blindly pursue profits to an excessive degree, it results in many things going wrong”. He argues, quite rightly I think, that a banks role should be “as a lubricant for economic activity” and that financial innovation is fine “as long as it leads to greater social welfare”.

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