This protected species status meant large institutions benefitted – indeed, continue to benefit from an implicit subsidy from the state. This subsidy is big. For the global banking system, it may currently amount to as much as several hundreds of billions of dollars each year. By comparison, that is multiples of the global aid budget. For UK banks, the subsidy amounts to tens of billions of pound each year. That too is multiples of the overseas development budget. These are extraordinarily large, and peculiarly-directed, government transfers to one sector. If banks have been the winner from these transfers, then the wider economy has clearly been the loser. The damage wrought by the pre-crisis debt mountain has been huge and is still rising. The cumulative loss of output relative to trend is already fast approaching one year’s output in the UK. As context, only world wars come with a heftier price tag. The strain is being felt by many homeowners, companies and, increasingly, governments. In the US alone, more than 4 million homeowners have so far lost their properties. Many more households and companies globally can only support their debts at near-zero interest rates. They are zombies, caught in a debt trap. In a way, none of this should have come as a surprise. We know from past crises that debt acts as a dragging anchor on growth for a protracted period.
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.