"Markets need morals," said Gordon Brown in his yesterday. If we have learned anything from the financial crisis it is surely that our economic system needs to rest on a set of values. We can, through dialogue and debate, work out what values are most important. Yet it is not enough just to hope that the banking sector will reform itself. Such a hope would be an idle hope. Labour needs to work at putting such values into practice.
The collapse of Lehman Brothers, coming a year after the fall of Northern Rock in this country, was a profound shock not just to the financial system but to those operating within it. Traders and others began to seriously question the basis of the securities they were buying and selling. In many cases they decided they could not trust valuation estimates, which meant they did not know how to price securities. This was more than just technical. Something fundamental about certainty in life was being considered. There are fewer such conversations today.
Yet the need to for values remains. We can probably agree on what some might be easily enough even if we differ on others. In his St Paul's Cathedral speech before the London G20 summit in April, Gordon Brown listed some, including hard work, fair play, a responsible approach to risk, loving your neighbour as yourself. He believed a global ethic was possible because different religions and traditions did share some common values.
This issue is being discussed at Labour conference this year in fringe events. The Christian Socialist Movement, the Christian group affiliated to Labour, has been running seminars on this theme all week. At CSM's Morality and the Markets fringe today, financial secretary Stephen Timms MP highlighted a role for faith groups to help identify key values. At the same event, Jon Cruddas talked about values such as kindness, often regarded as "soft" values but which were nevertheless essential. Cruddas argued that CSM was asking the right questions at this conference. Speaking at the Morals and Banking event on Tuesday, I threw a few values into the pot too. I would stress the role of trust, faith in each other, honesty, integrity, service, and a commitment to the common good. This latter point is important because there is a sense that some parts of the banking sector are trying to continue "business as usual" without addressing their relationship with the rest of society.
Lord Turner, Chairman of the Financial Services Authority appeared to be making this point in his Prospect magazine interview and subsequent Mansion House speech. He said that "some financial activities which proliferated over the last ten years were 'socially useless', and some parts of the system were swollen beyond their optimal size." He stressed that the City "will continue to play an important and vibrant role in the UK economy," but added that " ... not everything that a financial system does is socially useful." He quoted Stephen Green, Chairman of the British Bankers' Association in support: Green has suggested that "banks have pursued short-term profit by introducing complex products of no real use to humanity." Paul Myners, financial services secretary, has expressed frustration that banks appear to be resisting change. There is a real sense that the window of opportunity to address the nature of banking in future is closing.
This is not how people in this country generally feel, however. There is a strong anger still at what the banking system has done to the economy and that it appears to be showing few signs of regret, or as the Archbishop of Canterbury has argued, repentance.
Measures to regulate bonuses, linking them to a responsible approach to risk and to long term profitability are needed. Banks, at the very least, must not act against the common good. One way of helping to ensure this is to improve the relationship between the banking sector and wider society. Community reinvestment measures are a good idea as are Co-operative party proposals to encourage mutualism in the sector. Casino bank activities must be separated from retail deposits.
Gordon Brown's speech on Tuesday contained steps in the right direction, argued Jon Cruddas at today's meeting. I would add that banks have shown they cannot control their own activities; every few years there is another banking crisis. Rather than plough on hoping it will be different this time, we need to ensure the financial system can reflect realistic expectations of risk and return. That requires leaders to keep breaking out of the current "conventional wisdom" about how banks should work.
First published on Guardian Comment is Free 30/09/09.