In order to encourage the Belgian government to make the best possible choice of banking reform, we have decided to transform this common call into a petition. Thanks for signing online and please send it to all your relatives !
The Belgian government, acting in coherence with it own commitments, is preparing the banking reform. However, among the national regulator and the various members of the coalition government, disagreements exist respecting the true nature of the reform.
It is for that reason that we thought it useful to present our convergent views to stress what we consider as the decisive measure required to crown the reform : the break-up of the mega banks.
Let’s go back for a moment and review the sequence of events. In 2008, the losses of AIG, the cause of the fall of Merrill Lynch and Lehman Brothers (resulting at home with the debacle of Fortis and Dexia), brutally reminded us that globalized, deregulated and strongly interconnected finance, can send our society durably to hell.
Since then, the diagnosis has been unanimous : the banks, blinded by their cupidity, have systematically maneuvered for total deregulation of the system ; regulators have looked the other way and politicians have failed in their mandate of guaranteeing that finance has to serve the public good and the future of our society.
On the ethical level, the banks haven’t expressed a great desire to change their behavior. Understandable, since no incentives exist to do so. Certain banks have manipulated for their own benefit the interest rates (Libor, etc.) for the global credit market ; they have laundered billions of dollars of dirty money from illegal activities ; they have speculated against the interest of their own clients ; they have deliberately “trapped” cities and local governments with loans programmed to become “toxic” ; they have developed an industry of tax evasion ; and not a single banker ended up behind bars. While nations continue to inject capital into dead banking corpses, the latter continue to pay large recompensations for those that killed them ! Others “apologize” for their crimes and pay large fees hoping to escape from criminal conviction. Banks which were too big to fail became too big to jail ! Hence, what appeared an economical and financial problem, became a political problem : impunity.
The Glass-Steagall Solution
Therefore, the time has come for politicians to take things back in their hands. The approach of the U.S. President Franklin Roosevelt has to inspire us. It was FDR who, after an orgy of speculation has brought down the stock market in 1929 and ruined the confidence of the depositors in the banks, who worked out a solution : with the Banking Reform Act of 1933, the U.S. Federal government became the guarantor of the deposits of the citizen. However, to benefit as a bank from that guarantee, the banks had to abstain from any excessive risk.
While earlier that century, a bank as JP Morgan had imposed itself as the de factor central bank of the United States, Roosevelt broke its power by imposing the Glass-Steagall Act which separated strictly “traditional” banks collecting deposits and writing out low interest credits to households and firms on the one side, from investment banks which, if risks are taken, have to be in a position to fully assume their consequences, including extinction. This banking reform was a model and inspired the rest of the world. In Belgium, as desired by King Albert Ist, and against the advice of the Société générale, Royal Ordinances were introduced to that effect as early as 1934.
True, between 1933 and 1999, the official date of the repeal of Glass-Steagall in the U.S., the world saw many crises. However, they were manageable and didn’t threaten the entire world economy. By splitting up the banks, their size remained reasonable. Inversely, since the repeal of Glass-Steagall, the hypertrophy of the banks makes us fear the worst and several high level bankers, including those that got the law repealed, estimate today that it was the error of their life.
Financial speculation, which bankers have so much trouble identifying, continues growing. High Frequency Trading, close to non existent in 2007, represents today more than 50% of all market transactions ! A fabulous amount capable of bringing down the entire system. In the United States, Democratic Senator Elizabeth Warren is sounding the alarm bell : do we want to learn the lessons of the crisis ? Clearly not, she says, since the 4 largest banks of the US are 30% bigger that what they were in 2008 while the five largest U.S. banks alone own have of all the U.S. banking assets ! The cheap money printed in great quantity and given to the banks, is not going to the real economy but feeding once again a financial bubble capable of sinking us all. In France, the assets of BNP Paribas, a bank now in charge of a large parts of the deposits of Belgian citizens, are bigger than the French GDP.
To put an end to this permanent conflict of interest which represents the model of “universal” banks, Mme Warren in the Senate and others in Congress, introduced recently draft legislation under the name of the “XXIst Century Glass-Steagall” about which the press writes close to nothing. In Belgium, being courageous means to make the same choice. At home, maybe even more than elsewhere since the cases of Fortis and Dexia, isn’t it urgent to dissipate the profound distrust of the Belgian citizen towards his banks ? To do so, we need a viable and clean banking system. Breaking up the banks —if the bankers like it or not— is therefore the only responsible policy. The small size of our country might make it easier for us than for our large neighbors, to become an example.
• MP Bruno TOBBACK, former Minister and Chairman of the Sp.a (Flemish socialist party of Belgium)
• MP Karin TEMMERMAN, city council member of Gent, Chairwoman of the Sp.a parliamentary group
• MP Dirk VAN DER MAELEN, former Vice-President of the Sp.a, former Vice-Chairman of the House of Representatives
• MP Meyrem ALMACI, city councilor of Antwerp ; Chairwoman of the Groen-Ecolo Parliamentary group and co-sponsor of draft legislation for banking separation
• Karel VEREYCKEN, founder of Agora Erasmus.
The other signatories