Our monthly round-up of news, ideas and initiatives related to transforming the UK financial system for people and planet, compiled by the Lab’s CEO, Jesse Griffiths.
Is the banking crisis over?
The current crisis was triggered by rising inflation and interest rates, which have led to falls in the values of bonds. This, allied to bad management choices and poor regulatory decisions, caused Silicon Valley Bank (SVB) collapse. The nature of financial markets – which history tells us are highly volatile when trust is weakened – saw panic spread, bringing down other mid-sized US banks and then one globally important bank, Credit Suisse.
Whether the vulnerabilities built up over a decade of easy money are likely to make this financial crisis more serious than regulators are predicting is yet to be seen.
It’s not just bonds that have suffered from the new high inflation, rising interest rate environment: loans made when rates were low have also fallen in value. Taken together, one estimate is that US banks’ losses due to falls in bond and loan values amount to 80% of their capital.
Which other financial system vulnerabilities should we be watching? Top of many analysts’ lists is commercial real estate. It’s also possible that shadow banks could cause trouble: these bank-like entities, including hedge funds and private equity firms, have grown enormously since the global financial crisis.
One likely impact of the current crisis will be a ‘credit crunch’, which could cause problems for both the real economy and the financial sector. The banking crisis, allied to the continued tightening of monetary policy, could raise the possibility of a recession in the US or elsewhere, which could cause a broader debt crisis.
It’s not surprising that the IMF is warning that the world economy is entering a ‘perilous phase’ with low predicted economic growth and high financial risk.
As we grapple with these worrying events, here are five lessons we can learn from past financial crises.
The failings of the financial system…
The majority of the staggering 2 million people visited by bailiffs during the cost-of-living crisis report intimidation.
New research estimates that 28% of people won’t have pensions to meet minimum income levels of £12,000 for an individual and £19,900 for a couple. Did you know that, if current trends continue, your pension is likely to be paid by an insurance company, to whom many pension funds are selling their liabilities?
The exceptionally high level of financial exclusion in the UK means it’s time for a Fair Banking Act.
And the UK is facing a ‘cash famine’.
Cleaning up the system
Only 7% of recommendations from two major reports on improving ethics in public life in the UK, including that on the Greensill scandal, have been implemented.
The Senior Manager’s Regime, which holds bank staff accountable for wrongdoing, is in the government’s deregulatory firing line, with reports suggesting tens of thousands of bank staff will see their liability lifted.
Could anti-money laundering rules finally be calling time on Londongrad?
Here’s why the government should take the Serious Fraud Office more seriously.
The climate transition
The new Banking on Climate Chaos report is out: the world’s largest 60 banks financed fossil fuels to the tune of £673 billion in 2022 – less than in previous years, but largely only because outsized profits meant the fossil fuel industry had less need for external finance. Here’s how European banks and financial institutions continue to fund fossil gas power expansion.
It’s pretty scandalous that 95% of FTSE 100 companies lack credible transition plans.
Increasing risks from banking crises and climate change will drive a doubling in insurance spending in the next decade.
Developing country debt repayments are at their highest level for 25 years – debt cancellation will be needed, but this time it should be part of a permanent process that protects the human rights of people living in countries with high debt levels.
Is this the end of the Washington consensus? Great essay on the history of the alternative industrial strategy approach.
Have we become an asset manager society?
Here’s how to use Chat GPT to save you time when writing.