What measures should a popular government take towards banks?

11 June by Eric Toussaint , Patrick Saurin , Jeanne Chevalier


L’Hôtel de la Monnaie de Paris au XIXe

Economic heterodoxy and the programmes of deliquescent social democratic parties lack a structured project for the constitution of an alternative banking system. To remedy this, this contribution attempts to move towards a shared, coherent and operational proposal for an organizational plan for the banking sector and the concrete conditions for its implementation by a popular government that would come to power in Europe.

Measures to be immediately implemented

To have room for manoeuvering once in power and to limit the risks of financial asphyxia, a popular government must establish control on capital flow. Controlling capital is not necessarily contrary to the European treaties. Article 65 of the Treaty on the Functioning of the European Union introduces a number of restrictions on the freedom of capital movements, justified in particular by the fight against infringements of national laws on taxation or prudential matters or on grounds relating to public policy or public security. These reasons were called upon for Cyprus in 2013 and for Greece in 2015. Yet even if control of capital flow was contrary to the treaties, a popular government could assume disobedience. Moreover, the question arises of the place of a measure aimed at regulating capital in the hierarchy of norms, and therefore of the possibility for a government to implement it at once. In several European countries, national regulations provide for measures to control capital movements, such as the regulation of the duration of investments, at the regulatory level and not at the legislative level. They could therefore be applied immediately upon the coming to power of a popular government.


Towards a socialization of the private banking system

Money, savings, credit and the payment system, because they are useful to the general interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. and should imperatively respond to a public service logic, must be used and managed as part of a public service. The financial system must not be a source of profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. , detached from the financing of the real economy. While the development of financial capitalism and deregulated finance brought down the real economy in 2008 and threaten to do so again, the socialization of all or part of the banking sector is urgently needed. Indeed, two programmatic paths are emerging here: either proceed from the outset to the socialization of the entire banking system, including the financing and investment banks as well as the insurance sector, or socialize part of the banking sector with the creation of a public pole conceived of as a stepping stone towards the socialization of the entire sector. In any case, banks must have a mission of general interest, as was decided in France at the end of the Second World War, when two thirds of credit was controlled by the public authorities.

We have a preference for the term socialization over the term nationalization. The term nationalization can lead to confusion with the takeover of banks by the ruling elites within the framework of capitalism. Socialization refers more explicitly to collectivization in which workers make decisions and exercise control, which are two essential dimensions of the socialization process. Thus, in France, the term “socialisation” was already preferred by the socialist Jules Moch in 1945. At a meeting of his party’s governing body, he explained what the difference was: “For the Socialists, it basically resides in three features that make it possible to distinguish the socializations they envisage from certain forms of nationalization: capitalists would be eliminated, not only from ownership, but also from the management of companies; companies would not give rise to state capitalism that would merely substitute one boss for another; management would be democratic, involving workers, technicians, representatives of general interests in tripartite councils enjoying management autonomy. The socialized enterprise would thus appear as the laboratory of workers’ emancipation, the basis of the new society that the socialists dream of building.” Indeed, during the nationalizations that took place in Europe from 2008 onwards following the private banking crisis (Royal Bank of Scotland in Great Britain, Hypo Real Estate in Germany, ABN-Amro in the Netherlands, Fortis, Dexia in Belgium, Bankia in Spain, Banco Espirito Santo in Portugal, etc.), the public authorities did not redirect the nationalized entities in a way that was favourable to the population. It should be noted that the nationalization of banks was decided by the public authorities when public aid (loans, recapitalizations, guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). , etc.) was not sufficient to keep private entities afloat. Moreover, in addition to letting the population pay for the losses of these nationalized private banks, nationalizations were to be mere parentheses before further privatizations. Often, governments have not even exercised power on these institutions, leaving representatives of the private sector to lead them. The notion of”socialization" assumes a completely different logic and wants to set a first milestone in building a new society.

The word ‘socialization’ is preferred to ‘nationalization’ to clearly indicate how essential citizen control is, with a sharing of decision between managers, representatives of workers, customers and associations and local elected representatives, this decision making instance being further monitored by representatives of national and regional public banking instances. We must democratically define how an active citizen control can be implemented. Similarly, workers in the banking sector exercising control over the bank’s activities and actively participating in the organization of work should be encouraged. The banks’ management must submit a transparent and easily understandable annual public report on their management. We must favour a local, high-quality service that breaks with the outsourcing policies currently being pursued. Financial institution staff should be encouraged to provide genuine customer advisory services and aggressive forced sales policies should be eradicated.


Concrete modalities for a transition

However, the transition towards a socialized banking system raises several questions that a popular government will have to address.

- The number of banks to be socialized
If a government programme does not provide for the socialization of the entire banking system, the question arises of the number of banks to be socialized and the criterion of choice. Beyond its theoretical aspect, it refers to the balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of power that a popular government can rely on, which depends on the mobilization of the population. In almost all banking nationalization experiments, investment banks have been excluded from the scope of nationalization laws and kept in the private sector under pressure from the financial community. Thus, at the time of the second parenthesis of nationalization of banks in France under François Mitterrand, the State Secretary for an extension of public service initially proposed the nationalization of all institutions with more than 500 million francs in total assets. Finally, under pressure from the banking community, this threshold was raised to 1 billion. The number of banks to be nationalized had thus dropped from 60 (in a context of many more banks) to 39. This example clearly illustrates that the establishment of a public banking service will be part of a balance of power for which it will be necessary to be well prepared.

- Compensation for shareholders
When banks are socialized, the question of compensation for private shareholders also arises. Large shareholders and small shareholders should be treated differently. The major shareholders are actively or passively responsible for increasing speculative and high-risk banking activities for savers, the Treasury and society as a whole. Small shareholders do not take part in banks’ decisions; it is normal for them to be compensated. Moreover, it goes without saying that the deposits will be protected. In most of the bank nationalizations to date, shareholders have been compensated for at taxpayers’ expense. This was particularly the case during the nationalizations that took place in Europe and the United States after the 2008 crisis, shareholders were compensated and the costs of nationalization were borne by public finances. A popular government coming to power in the coming years is not obliged to do the same. It could decide to pay only a symbolic euro to major shareholders and recover the cost of reorganizing the bank [1] from the global assets of major shareholders.


Towards a public banking pole

If the choice of immediate socialization of the entire banking sector is not shared by all the forces gathered in the setting up of a popular government, the public banking pole could represent a compromise solution and give this government the means of its policy. In order to direct credit towards socially and ecologically useful projects, the socialization of generalist banks must support the wider creation of a public banking pole (or public financial pole). The mission of this public pole would be to support an economic, ecological and social recovery plan, strengthen the productive apparatus, direct public savings towards meeting social and economic needs and ensure financial inclusion and access to financial services for all.

With a view to the creation of this pole, a popular government will be able to rely on institutions already present in each country. If we take the case of France, this pole would primarily include the Caisse des dépôts et consignations and the Banque publique d’investissement (BPI). Created in 2012, the BPI has been thoroughly misled into adopting a traditional banking behaviour whereas it should be one of the key actors of the investment in the ecological transition. Other public or semi-public structures such as the Agence Française de Développement, Banque Postale or Coface could also be backed up. Perhaps it would be wise to include the major mutual banks (Crédit Agricole, BPCE Banque Populaire Caisse d’Epargne, Crédit Mutuel) in this public sector. This would have two advantages: it would take mutual networks out of the purely financial logic of other major banking groups such as BNP or Société Générale, and give more strength to the public sector to weigh in the face of private banks, whose socialization would have been deferred over time in the hypothesis of a socialization process in successive stages.

As a rule, in terms of governance, each institution would retain its operating autonomy and its own management bodies in this public pole. However, these institutions would operate within a common framework defined by a national steering body that would ensure overall consistency. The national steering body would consist of national and local elected representatives, heads of institutions and representatives of workers’ and citizens’ associations (including trade unions). The public pole would vary according to the location, though organized along the same lines so as to ensure a sufficiently fine and balanced coverage.

At European level, a popular government could try to organize cooperation between its public financial pole and similar institutions in other countries as well as with the European Investment Bank (EIB), the EU’s armed financial arm. Similarly, everything would be done to put the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx
back at the service of a social policy, unlike its current role as a financial policeman that fastidiously monitors the implementation of austerity policies.


The structure of the future banking system

If a private banking system is to be maintained, what would emerge is a tripartite banking system: a public financial pole, including the socialized banks and other public institutions, would coexist along with the private banks and a cooperative sector. This cooperative sector would re-establish cooperative and mutual banks and once again inscribe the values of democracy, solidarity and non-profitability in their statutes, because currently, the so-called cooperative and mutual banks operate and behave exactly like the private banks. Personnel representatives might be granted the right to information and veto rights over the projects that will be financed by the bank. Socialization requires a fundamental revision of boards of directors and the way in which their members are designated. For all banks that do not belong to the public sector, a “banking law” would redefine the missions of all banks as well as the membership and the appointment process of their boards of directors, regardless of their legal structure. It would require them to take on a share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the clientele considered “unprofitable,” so that these clients are not provided services by the public banking pole alone. A new code of professional ethics should be defined for the entire banking sector and a strict roadmap should be imposed on the entire sector in order to bring the banking groups and their entities back to their essential missions: holding savings and deposits without risk and financing the real economy. Especially vigilant monitoring will need to be exercised over banks left outside the field of the public pole to ensure that they adhere to the new code of ethics and properly follow the roadmap.

The question of whether a public banking pole can coexist with private banks and whether the latter, subjected to strong public regulation, can be made to serve the general interest is an essential one, and explains the aforementioned need for close monitoring. Should a private bank or banking group fail to adhere to its obligations, sanctions would be applied and the directors of the guilty groups would be held civilly and criminally liable before the courts.

If a political force of the Left choose full socialization of the banking sector, the following approach could be taken:

Imagine what socialization of the banking sector means in concrete terms: private banks will have disappeared; that is, following their expropriation (with small shareholders being compensated), their personnel will be reassigned to the public banking and insurance service, with guarantees of their seniority and their wages (up to an authorized maximum in order to strongly limit very high salaries, and with increases in the lowest wages to reduce the wage gap) and with an improvement in working conditions (benchmarking [2] and forced sales practices would be abandoned). A system of recruiting new employees will be implemented in keeping with the recruiting standards of a public service.

The existence of a concentration of competing bank branches in large urban areas while at the same time there is a shortage or absence of banks in small towns, villages and working-class neighbourhoods will be ended. A dense network of local branches will be developed in order to strongly increase accessibility to banking and insurance services, with competent staff to respond to the needs of users in keeping with the missions of public service. No one will be denied access to the public banking service, which must be provided free of charge.

The local agencies of the public service will manage current accounts and will receive users’ savings, which will be fully guaranteed. Savings will be managed without taking risks. These savings will be used, under citizen control, for financing local projects and investments of wider scope aimed at improving living conditions, struggling against climate change, abandoning nuclear power generation, developing short supply circuits, financing territorial development with rigorous adherence to social and environmental standards, etc. Savers will be able to choose the project(s) they would like to see financed by their savings.

Local branches will grant credits at no risk to individuals, households, SMEs and private local entities, associations, local governmental bodies and public entities. They will be able to set aside a part of their resources for larger-scale projects than those financed at the local level – naturally within the context of a concerted policy.

The fact that local branches will manage financial resources of reasonable size for local uses or for projects of wider scope that will be presented in a precise way (with a programming calendar and monitoring tools providing clear oversight of the use of the funds and the proper implementation of the projects) will facilitate supervision of the various participants.

The local projects to be financed will be defined democratically with maximum citizen participation.

The local branches will also be in charge of insurance contracts for physical and legal persons.

Support a transition towards a social sustainable and ecological economy

Also, the ministries in charge of public health, education, energy, public transport, retirement, the environmental transition, etc. will have financing from the State’s budget.
Specialized cross-cutting agencies will intervene in areas and activities that are beyond the competencies and spheres of action of a single ministry. Their purpose will be to conduct specific or transverse missions defined with citizen participation, such as the programme for total abandonment of nuclear power generation, including safe processing of nuclear waste over the long term.

A socialized banking sector will make it possible to reconstitute a virtuous circuit of financing the public authorities. They will be able to issue securities that will be acquired by the public service without being subject to the diktats of the financial markets.
Many aspects of the project remain to be worked out collectively. We are in the preparatory phase of the implementation of a completely new system. That requires an ambitious collective effort of pooling ideas and propositions. The work is only beginning.


A new regulation and monitoring of the financial sector

A popular government should immediately and significantly regulate the financial sector in order to ensure financial stability. The size of banks must be reduced so that no “systemic” bank can jeopardize the entire system. Investment banks must be separated from retail banks in order to protect the latter. Investment banks will not benefit from any state guarantee. This measure had been implemented by President F. D. Roosevelt in 1933 following the October 1929 Wall Street crash. The newly elected President closed the banks for a week in March 1933 and passed the Banking Act (also known as the Glass-Steagall Act) in the same year, which required the separation between retail banks and investment banks.

In addition, the new banking regulation will impose

To ensure an efficient monitoring of the financial sector, an Office for Financial Security may also be set up. It would bring together monitoring bodies for banks, financial markets and insurance companies. Its mission would be to:

  • measure the evolution of savings and credit and see to the smooth functioning of the payments system,
  • check and monitor whether the banking institutions’ policies are in keeping with the roadmap defined for them, in particular the financing of the ecological transition, the financing of the operating and investment needs of major public services, the financing of the de-privatization of major public services previously transferred to the private sector (for example, health, water, energy, etc.),
  • also ensure that bubbles are prevented in certain sectors such as real estate.

It would implement control on capital and a financial transaction tax. The mission of the Office for Financial Security would be to subject financial innovations to a precautionary principle: the banks that develop them will have to prove their usefulness and assume full responsibility for them. Products and activities that are too complex would be prohibited. Finally, it would be possible for the supervisor to impose significant fines on banks in the event of non-compliance with the regulations and with their obligations (fines will be proportionate to the harm suffered by the community and to the amount of illegal profits). Similarly, managers would be likely to incur personal liability in the event of serious breach. The banking license will be withdrawn from any bank that contravenes the new legislation and its managers will be prosecuted and punished with imprisonment.


Recovering control on the Central Bank

A popular government should also monitor its central bank, with a view to resuming control on its monetary policy and financing conditions. In 1871, the Paris Commune had made the mistake of not taking control of the Banque de France, thus depriving itself of considerable financial resources which it handed over to the Versailles enemy. As Karl Marx wrote in a 1881 letter about the Paris Commune: “The requisition of the Banque de France alone would have put an end to the Versailles rantings.” The Cuban revolution did not make the same mistake. In the first year, in 1959, the government put Che in the presidency of the Central Bank of Cuba. The bank’s mastery helped to carry out a series of profound social reforms which, supported by powerful popular mobilizations, positively marked the beginnings of the Cuban revolution.

Recovering control of the central bank is essential to get the state out of the clutches of the financial markets to finance public services. As Benjamin Lemoine writes in his book L’ordre de la dette about the French public financing system: "At the end of the Second World War and for more than twenty years, the State apparatus, via the Treasury circuit, gleaned sufficient financial resources to mostly escape the pressure of creditors. It monitored the activities of banks and of the finance sector and linked its own treasury instruments to these regulations. Similarly, its financing was coordinated with national policies determining the amount of money and guiding the credits allocated to the economy.” This policy allowed France to finance itself for nearly 40 years without depending on financial markets, dominated by private banks and other financial companies. Such a Treasury circuit could be gradually re-established.


The need to rely on popular support

As Antoine Prost writes, nationalizations at the end of WWII must be placed in the context of the Résistance, i.e. “a movement from below”. In 1945, 70% of French people (and 81% of workers) were in favour of nationalizing banks. To achieve such a degree of support and to prevent capitalists from recovering socialized sectors and companies, a popular government will have to explain the stakes of such a paradigm shift. Field initiatives involving the population, such as citizen audits, can be put in place and supported by a political force aiming at taking the government over. In France, Greece and Spain, collectives for a citizen audit of public debt have been created from 2011 and have given rise to reports, analyses and citizen actions on the issue of national and local debt. Generally speaking, monetary and financial issues must no longer be perceived as somehow hallowed and out of reach. In 1891 Friedrich Engels pointed out the “holy respect” with which the Communards stopped at the doors of the Banque de France (whereas "The Bank in the hands of the Commune was better than ten thousand hostages.”). Finance must be explained and exorcized. Not having done enough of this probably contributed to Alexis Tsipras’ setbacks after his victory in the January 2015 elections. Secret diplomacy and the power of experts do not make it possible to rely on the large-scale popular mobilization which is necessary to retrieve what was lost to capital.

For a left-wing movement, it is fundamental to show the population the positive change resulting from the decision to no longer entrust the ownership and management of the banking system to big capital and the enormous advantages entailed by the existence of banking as a public service.


The significance of popular mobilization

The socialization of the banking sector cannot be seen as a catchword or a demand that would be sufficient in itself and that decision-makers would apply once they had grasped its common sense. It must be conceived of as a political objective to be achieved as part of a process that is driven by citizens. Not only must existing organized social movements (including trade unions) make this a priority on their agendas and the various sectors (local authorities, small and medium-sized enterprises, consumer associations, etc.) similarly support this view, but also - and above all - employees must become aware of the role of their profession and of the interest they would have in banks being socialized and users must be informed wherever they are (e.g. occupation of bank branches everywhere on the same day) in order to participate directly in defining what the bank should be.

Socialization of the banking sector and popular support are necessary conditions for a change of model.

Only very large-scale mobilizations can ensure that the socialization of the banking sector is actually achieved for such a measure touches the very heart of the capitalist system.

Translated by CADTM.


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Footnotes

[1A large proportion of banks hide toxic assets in their accounts (various structured products valued at their nominal value, whereas the market value is much lower) and are affected by non-performing loans (NPLs).

[2Benchmarking is a tool for surveillance of employees, whose results are accessible to everyone at all times and are compared continuously via a ranking that stigmatizes those who are considered to perform less well. It is a technique of management through stress that is widespread in major corporations in order to generate an unhealthy emulation.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

Patrick Saurin

He is member of the Truth Commission on Public Debt. Spokesperson for the bank employees’ labour federation Sud Solidaires de la Banque Populaire – Caisse d’Epargne (BPCE) - France.

Other articles in English by Patrick Saurin (5)

Jeanne Chevalier

est cadre du secteur public bancaire, militante associative dans le domaine de la culture et responsable de la rédaction du livret programmatique “Banques” de la France Insoumise.

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