Thursday, January 03, 2013

IPPR report on finance and the British economy

Today the Institute for Public Policy Research published a report on the financial sector and its role in the British economy. You can download Don’t bank on it: The financialisation of the UK economy
 from the think tank's website.

That website sums up the report's conclusions:
After the events of the last five years, finance – and investment banking in particular – are held in very low esteem in the UK, but a modern economy cannot function without a healthy financial sector. For historical reasons, the UK has a larger financial sector than other similar economies and this can be a source of strength. But the financial industry is an asset that comes with associated costs. The challenge for policymakers and customers of the financial sector is to reduce these costs without damaging the asset. 
We recommend the following steps should be taken.
  • Retail and investment banking activities should be split into separate organisations. 
  • Competition in retail banking should be increased, for example by reducing barriers to entry. 
  • Risk-taking in investment banking should be reduced, for example by making senior directors and managers liable for financial loss when things go wrong.
  • A British Investment Bank should be set up to fill the financing gaps left by commercial banks.
  • Investors should stop paying extremely high fees for what can only – on average – be investment performance in line with the market. 
  • More should be done to make the case for wide-ranging financial transaction taxes and to explore ways to minimise avoidance of them. 
  • The overall level of credit in the economy – in particular speculative credit – should be controlled.

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