We have seen, first, inequality-induced crisis and, latterly, crisis-induced inequality. The 99% have faced double-jeopardy. Let me explain why. The up-escalator Globalisation has conferred many benefits to the poorest in the world and narrowed global inequality. But it is well-known that income distributions within many advanced economies became increasingly skewed in the decades prior to the crisis. There was no single cause of this rise in inequality. Longer-term structural factors, such as dispersed levels of educational attainment, were clearly a key factor. BIS central bankers’ speeches  1  But so, too, were financial factors. James Galbraith’s recent book on Inequality and Instability argues that the biggest single cause of rising levels of inequality in the US was the asset price boom which commenced in the early 1990s. This rising tide of asset prices added to aggregate wealth. But it did not lift all boats. The asset rich, in particular the owner-occupying rich, became a lot richer. Meanwhile, the assetless and indebted fell further behind. In other words, the pre-crisis asset price bubble acted like a regressive tax. As Raghu Rajan describes in his book Faultlines, the response to this inequality problem, in the US but elsewhere too, was simple and, on the face of it, brilliant. It was to make assetholders and owner-occupiers of us all. But for the majority there was one small problem: these assets had to be financed with debt.
Their business model is fascinating, Quaker-even, in its orientation. They offer only basic banking services, mortgages and small business loans, to people in a tight, locally-defined catchment area. All credit decisions are taken locally by people, not centrally by a computer. No bonuses are paid and no one has a sales-target. When the whole firm out-performs, a contribution is made to a pooled fund which is invested on employees’ behalf. The fruits of success are distributed equally and gratification is deferred. 6  BIS central bankers’ speeches  For banking, this is back to the future. If that sounds attractive, then it is down to us – not regulators, not politicians, you and I – to deliver it. If as bank customers we want to change the culture of banking, then we should start by supporting those banks who are delivering that change. Putting your money where your mouth is would deliver far greater and more durable change than any amount of banker-bashing. Already there are some encouraging signs of the winds of change blowing through the system, not just from the new entrants but among the UK’s oldest banks too. The new heads of the UK’s biggest banks have committed to restoring trust in their institutions and improving their social usefulness. And those words are beginning to turn into actions. Barclays and today Lloyds are seeking to change their sales-oriented culture, returning to their Quaker roots. There is the quiet, but unmistakable, sound of a leaf being turned.