The last decade witnessed a profound and fundamental shift in the economic foundations of western liberal democracy, with deep and alarming consequences.
10 years on and the complex pattern of behaviours that led to the financial crisis have yet to be properly understood or even examined in any great depth. Nevertheless, the central role and obvious failings of many banks made them an easy and immediate scape goat for wider and more difficult problems. In the great rush to regulate, legislate and litigate, we inadvertently sowed the seeds of a far greater and more menacing threat to our economic prosperity.
Our economic success rests on specialisation and the division of labour. This enabled our hunter-gatherer ancestors to form small communities within which each participant could develop specialist skills to the benefit of all. Naturally this necessitates trade or some form of sharing and distributing production across and between communities. The easier it was to trade, the faster and more prosperous these communities became.
It took thousands of years to progress from simple barter to an effective system where value could be exchanged more efficiently. Early monetary systems came with a whole host of problems and repeated failures, but along with these risks came economic development and the spread of prosperity at a previously unimaginable rate that ushered in the modern age.
Today we can transact almost instantaneously via a wide range of electronic payment mechanisms. Accounting for the countless millions of transactions that take place every day is the fundamental purpose of our monetary system and the primary and most important function of our banks. Any impediment to the flow of these transactions will directly diminish our economic prosperity. Furthermore, equal access to the banking system is critical to every individual’s ability to participate in an economy and to prosper – it is the foundation of a free society.
Consider for a moment the consequences of not being able to operate a bank account or the impact of significant restrictions on what you can do with your money? How would this impact you personally? What would happen to your savings? How would you be paid for your work or buy goods and services? It is an alarming thought that at a stroke the banking system could effectively lock you out of the economy almost entirely – and as the law stands currently you have absolutely no right or ability to challenge such a decision.
To the contrary, since 2007 our banks have been under extreme regulatory, political and reputational pressure to de-risk their deposit books and restrict the types of individuals and businesses that they are willing to provide banking services to.
You might think this is just affecting crooks and unsavoury businesses but you would be quite wrong. Even the families of our politicians and public servants are finding it increasingly difficult to obtain banking facilities, while whole industry sectors such as e-commerce and shipping and many entire jurisdictions are now largely excluded from mainstream banking because they fall into categories that the banks have concluded are not commercially worth the effort.
It would also be a mistake to think this does not affect you, even if you have no problems currently getting banking facilities. The restriction or exclusion of great swaths of the community from banking directly diminishes the capacity and prosperity of the entire economic system, not to mention the erosion of our basic human right to participate in the community.
To make matters worse, the banking sector has been forced to consolidate to only a handful of providers, all of whom are under near direct governmental control or supervision. Extraordinarily, you cannot participate in the Sterling economy without the explicit or implicit approval of just seven banks. This alone presents such a systemic threat to our western liberal democracies that it should be the no. 1 priority of governments and regulators.
The consolidation of banking means that policies and decision making is almost always made remotely. Local bank managers can no longer make decisions that are appropriate to the community that they are serving. All too often policies are determined centrally based on factors that have little or no relevance to the communities impacted.
Small countries and fledgling industries have been particularly affected. Many have found themselves effectively excluded or restricted in their access to mainstream banking, putting the prosperity of entire communities under threat and restraining the wider economy’s ability to innovate and grow. But these are just the first wave effects. If we continue to undermine the foundations of our monetary system it will inevitably collapse under its own weight, it is just a matter of time.
This is why, all being well, the Capital International Group will be opening a new bank in 2018 – a focused local bank that understands the nature and requirements of the communities it will serve. Making decisions locally and responding to the needs of the community and its industries. The bank will serve corporate clients and high net worth individuals under the Isle of Man’s Alternative Banking Regime (ABR), which provides a framework for new smaller banks to establish and develop. The Manx Government has shown great leadership and vision with ABR and is leading the world in addressing the great banking crisis of our age.
To find out more please follow us on LinkedIn or email us; and if you like what we are doing, please spread the word. It’s a big commitment for us to set up a bank and it is only with your support that we can provide the services that you need.