There is a very interesting use of language by Andrew Haldane, Executive Director of Financial Stability at the Bank of England. The following quote comes from a speech he gave last year, and you can read the entire speech here.
The car industry is a pollutant. Exhaust fumes are a noxious by-product. Motoring benefits those producing and consuming car travel services – the private benefits of motoring. But it also endangers innocent bystanders within the wider community – the social costs of exhaust pollution.
Public policy has increasingly recognised the risks from car pollution. Historically, they have been tackled through a combination of taxation and, at times, prohibition. During this century, restrictions have been placed on poisonous emissions from cars – in others words, prohibition. This is recognition of the social costs of exhaust pollution. Initially, car producers were in uproar.
The banking industry is also a pollutant. Systemic risk is a noxious by-product. Banking benefits those producing and consuming financial services – the private benefits for bank employees, depositors, borrowers and investors. But it also risks endangering innocent bystanders within the wider economy – the social costs to the general public from banking crises.
Public policy has long-recognised the costs of systemic risk. They have been tackled through a combination of regulation and, at times, prohibition. Recently, a debate has begun on direct restrictions on some banking activities – in other words, prohibition. This is recognition of the social costs of systemic risk. Bankers are in uproar.
This paper examines the costs of banking pollution and the role of regulation and restrictions in tackling it. In light of the crisis, this is the $100 billion question. The last time such a debate was had in earnest followed the Great Depression. Evidence from then, from past crises and from other industries helps define the contours of today’s debate. This debate is still in its infancy. While it would be premature to be reaching policy conclusions, it is not too early to begin sifting the evidence. What does it suggest?
I was altered to this document in an article in today’s Guardian by Tony Greenham of the New Economic Foundation.
Barclays avoided nationalisation during the crisis, but like other banks it profits from hidden subsidies