Lightbulbs
Ideas for Scotland
No 6

The RBS bridge
Islay McLeod

How to reform the banks

John Moorhouse

This idea assumes that Scotland will gain its independence in 2014 – the anniversary of Bannockburn, and the year the Commonwealth Games come to Glasgow.
     We have for the last 10-20 years spent much more than we can afford in the west. Levels of debt in the US and the UK, and much of western Europe (Ireland and Spain chronically) are almost as high as GDP. Global GDP has more than doubled in the last 10 years. These figures tell a story. We cannot spend money that we do not have. The credit crunch is based on this observation. Sub-prime mortgages were sold to those whose ability to re-pay was non-existent. Bust had to follow. Now is the time to examine the economic free-for-all which led to this situation, and re-introduce the economic controls which prevailed before the free-for-all began.
     The banks have been the agents for this catastrophe. Modern banking was virtually invented in Scotland – the Bank of England was developed by a Scot – and Dr Henry Duncan founded the very first savings bank in Ruthwell 200 years ago last month. Interestingly this significant event passed virtually unnoticed and I was just about the only person to visit his church during the anniversary week.
     Let Scotland now take a lead and nationalise the banks properly, leaving the casino investment banks to do what they want. Let them go bust (or not) in consequence rather than be propped up by the taxpayer. Split up the big banks into the different functions. The bonus-paying culture of reward must be matched with the risk of failure. But the lending and borrowing function of the old banking service should be separated, and be a good servant to society. Nationalisation is, I fear, probably the only way left to achieve this.
    
For more than 100 years Scottish banking was a by-word for probity, honour, reliability and trustworthiness. In his autobiography 'The early life of James McBey 1883-1911', McBey, subsequently recognised as one of the greatest British engravers of the 20th-century, describes his life working in a bank in Aberdeen. His daily routine was almost exactly the same as I myself followed 60 years later in Barclays Bank, St Pauls Square, Birmingham. Absolute attention to detail, respect for the customer and even more respect for the manager. And no-one went home until all the tills (and the stamp book) balanced. To get a loan, you had to demonstrate your ability to repay it by saving regularly first. You went to a building society, not the bank, for a mortgage – and again you had to be a regular saver before you could borrow (a maximum of two-and-a-half times your annual salary).
     With the right leadership, the culture of working at your professional best, with reward and promotion for hard-work, and a job for life could put the lid back on the Pandora's Box of the bonus culture. These Scottish banks could be an exemplar for the rest of society. Of course, capitalism may decelerate or even grind to a halt. It virtually has already. But we all have enough. Our western world is pampered and privileged. We need less, not more.
     Scotland can lead the way in transforming its own society and show the way to the rest of the world.  We have a wonderful example of how the UK and the US should have conducted its financial affairs over the last 20 years before us now. Canada: none of their banks needed a bail-out. The provincial government of British Columbia started making deep cuts in their spending almost within days of the first whispers of a recession. Let's take several leaves out of their book in Scotland, and stand out against the feeble compromise in Westminster. Attempts to preserve the system that led to downfall are doomed to fail.

John Moorhouse is chairman of Grand Central Savings, a banking service for the unbanked, and a trustee of several other charitable organisations