There’s never a dull moment with the British banks.
Barclays, regarded as one of the UK’s strongest banks, has announced a shock rights issue.
It’s all come about because last month the UK’s Prudential Regulation Authority (PRA) reviewed the leverage of the UK’s major banks and building societies. As a result, they singled out Barclays and Nationwide as needing to get their house in order.
The PRA wants to see a minimum leverage ratio of 3% (equity to assets). This also happens to be the new standard to be introduced globally under the Basel III rulebook.
The PRA calculated that Barclays’ leverage ratio was 2.5%, but since then the bank has revealed another £2 billion of losses in “conduct provisions” (for bad behaviour) relating to the mis-selling of PPI and interest rate swaps. This has reduced Barclays’ leverage ratio to just 2.2%.
Paul Mason, the economics editor of Newsnight, has been predicting a second credit crunch since at least 2011 (google: paul mason “second credit crunch”) and there have been rumours of a new credit crunch starting in China this year. Additionally, there are the massive problems in the Eurozone with the PIIGS countries in particular in dire straits which could provoke tumultuous effects on European and world markets.
I think Paul argued (but I can’t find a web page where he made the arguments – perhaps it has been removed due to the politically/economically danger of such information) that when governments bailed out banks in the first credit crunch, they borrowed most of that bailout money from other banks, and he predicted that countries themselves would go bankrupt this time if they bailed out the banks.
Provisions are supposedly being made to avoid this problem by making banks themselves pay for the crisis. However, a leverage ratio of 3%, never mind 2.2%, would surely not be enough given the scale of anything approaching the first credit crunch starting with subprime mortgages in the USA!
So what does this mean for Left Unity and the prospects for achieving socialism generally? I think it means that we should be prepared for another massive crisis at (just about) any time. I think this will render arguments about making small reformist (Keynesian) changes – which cannot work anyway because gains for ordinary people made in booms tend to be taken back in recessions – redundant. This would be a time, which we really must seize, to take power internationally – i.e. carry out a (preferably peaceful or mainly peaceful) world socialist revolution!
[You may like to join my group “Eurozone in crisis: second credit crunch inevitable – end capitalism!” at https://www.facebook.com/groups/eurozonecrisis/.]