What A Stupid Thing To Do, Impose Huge Fines On A Nationalised Bank!

Adam Lovejoy writes from the City of London: As the Royal Bank of Scotland is busy negotiating with the City regulators the size of the fine it will have to pay for its role in the Libor fixing scandal the irony of the situation seems to bypass the government generally and Chancellor George Osborne in particular. The thing is that RBS is nearly 80 per cent owned by the British taxpayer so in effect what we are witnessing now is the government regulators going after a bank that is funded by the taxpayer and in effect punishing not the people who actually fixed interbank interest rates to make a buck out of it but the ones who are paying for RBS to stay afloat. This is so stupid that on the 12 point scale of stupidity this fares somewhere around 13.

The bailout of the banks that was forced through by the previous Labour government under the leadership of Prime Minister Gordon Brown, who incidentally seemed to be very keen on saving Scottish banks first and foremost, being the proud Scot that he was and allegedly still is, was supposed to help the British banking industry to survive. Why failed banks were saved nobody can still really say. In a free market economy failed enterprises should be allowed to go down and be replaced by ones which  function properly. But as we are where we are at the moment it sort of makes sense for the government not to treat nationalised banks as if they were private operators. It just goes against common sense and business logic. You don’t really burgle your own home, do you, or mug yourself on the street?

Imposing fines on nationalised banks smacks of gross stupidity. Just as it is not a good idea to impose fines on commercial banks either as they simply pass them over to customers in the form of excessive rates of interest and charges on their loans and overdrafts and other cunning methods of sucking money out of people. (I would love to know where pay day loan companies and dodgy credit card firms with extortionate interest rates get their funds from?) So fining a big bank is basically opening the doors to more misery for its customers. And regulators should stop pretending that they don’t know this.

But how do you punish the banks for their sins, you may ask? And that would be a good question, especially in the light of the money men getting away with some pretty serious misdemeanours since 2008 when they caused that crash and managed to get away with it and got even more prosperous as a result. Well, the easiest thing, of course, is to fine specific individuals who are wealthy enough to cough up some serious moola. Yep, that is the sort of punishment that bankers are terrified of. That is what makes them lose sleep and chew their nails off. Not to mention suffering from all sorts of erectile problems. In other words, personal responsibility for your actions is a wonderful thing. And it has no negative consequences for bank customers.

The only problem is, of course, that governments don’t like to punish their friends in the banking profession. Banks are good at funding election campaigns and offering cushy jobs for retired politicians. So why would any of them bite the hand that feeds them? That is why it is so much easier to impose fines that are not really fines but more like public relations stunts. Although, of course, when it comes to punishing nationalised banks it sure smacks of total lunacy.

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