Finance has failed because of its self-referential world where people are merely trading existing assets, rather than creating new assets. And regulation is failing by making things ever more complex and less related to the real interests of the public. Author and economist John Kay says regulation of banking is not about writing more rules but changing the structure of the industry.
March 07, 2016 | The Banking ConversationEmmanuel Daniel (ED): I'm very pleased to be able to speak to John Kay, economics commentator, professor, and someone who’s worked very closely with the government in the United Kingdom and Scotland. His latest book, Other People's Money: Masters of the Universe or Servants of the People? focuses on where banks are today, how they’re being regulated, where they are headed, and how they influence the economy in that regard.
You are a pioneer in at least two think-tanks in the UK, where businesses were part of the process of influencing government policy as the UK was changing from a very Fabian type of economy to what it is today. Just give us a sense of how your thinking has evolved over time.
John Kay (JK): Banking has evolved during that time. And one of the things that has influenced the evolution of banking has been that change in the intellectual climate you're describing; essentially the much greater readiness to leave things to market forces than was true up until the 1960s. But I think actually, as far as the banking and financial sector is concerned, the main effect of that has been negative, not positive. You asked me where I come from in all of this. I go back to Edinburgh in the 1960s when I was a schoolboy, and then going in to the Bank of Scotland, or the Royal Bank of Scotland. That was a career for the boys in my class who weren’t going to get quite good enough grades to go on to good universities. These people would work in the bank for 20 years, become branch managers, and work for another 20 years before they retired with a pension. And they existed in that rather stable world, which everyone imagined would go on forever, and they were very much part of their local communities and through that, knew who it was appropriate to lend to and who wasn’t. And there’s this extraordinary paradox that by the time the Bank of Scotland and the Royal Bank of Scotland both went bust in 2008...
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Interview Transcript, The Banking ConversationKeywords:Regulation, Trading, Payments, Wealth Management, Capital Allocation, Risk Mitigation, Financialization, Challenger Banks, Credit, Ring Fence, Basel, Secondary Market, Assets, Trading
