Charter for a New Financial System

The community of organisations, academics and finance professionals advocating the transformation of finance is growing!

At the Transforming Finance  conference which took place on Friday 10th May in London and has brought together leading economists, campaigners and finance professionals, the Charter for a New Financial System was launched.

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CHARTER FOR A NEW FINANCIAL SYSTEM

Since the crisis of 2008, the failure of our financial system to deliver benefits for society, the economy or the environment has been a perennial feature of mainstream political debate. However, whilst there is a growing and shared analysis of the problem, there has been far less time spent on articulating a positive vision of a how a future financial system should operate in order to deliver those needs. Still less on spelling out what policy measures should be taken to get us there. This vacuum has been filled by the vested interests in defending the status quo, so the governments of Britain, the rest of Europe and the US have largely been trying to repair the old finance system, rather than transform it into a better one.

This statement represents the views of a growing community of advocacy organisations, academics, finance professionals, customers and public interest groups that reject a finance system which is riddled with short-termism, secrecy, conflicts of interest, intermediaries and unproductive speculation. We want to see the system transformed into one that takes a long-term outlook, allows greater competition, thrives on transparency and diversity, and is channelling more finance into productive investment that delivers for society, the environment and the whole economy. We are devoting resources to make this transformation happen, through collaboration, building a community of interest and advocating change.

We believe that the conditions for transforming finance are now in place at European and national level, and that, with sufficient political will, 2013 could be the year where it starts to happen:

• the combination of banking reform proposals and papers on the need for long term investment in UK and the EU, will provide a great number of political opportunities for change that may not come around again for some years;

• a new wave of financial providers, be they ethical banks, new entrants, state sponsored entities, social finance or peer to peer platforms, is being proved in the marketplace; and

• a collection of policy ideas that could transform finance is being rapidly developed, in different places, and are ready for mainstream debate.

Below are the key features of how a transformed finance system might look. We are collectively working on ideas to make this happen. Please join us, support the change and share the ideas.

JUST BANKING

The banking sector needs to be transformed in the following ways:

• There should be no bank in the system which is too big to fail, so the taxpayer is not underwriting their costs with an implicit subsidy.

• Retail and investment banking should be regarded as entirely different businesses and separated accordingly.

• There should be increased competition and diversity within retail banking allowing for frequent new entrants, and exits, multiple ownership models including mutuals, credit unions, local banks and sector banks.

• Banks should ensure they invest a far higher proportion of their balance sheets to the real (non-financial) economy and for productive uses. Policy should be actively used to reduce speculation and the creation of asset bubbles.

• There should be a permanent and legitimate role for the state in banking, at a local or national level, either to reduce the cost of risk capital for socially desirable activities and innovation, or to influence the overall allocation of credit to the economy.

INVESTMENT AS IF THE FUTURE MATTERS

Long term savings capital should be deployed in the market primarily as investments in economic activity for the long and medium term, rather than a pool of money to fund short term, speculative trading in equities which has little bearing on the true value of the assets being bought and sold.

• Fiduciary standards should be applied consistently to those managing other people’s money: this means addressing the conflicts of interest between financial intermediaries and the millions of ordinary savers whose money they invest.

• Investment institutions should understand and take into account the social, environmental and other systemic consequences of their investments; the legal framework must support and encourage this.

• The structure of the investment sector must maximise transparency and accountability to savers, and minimise opportunities for rent-seeking.

• The policy framework and tax system should unambiguously reward equity investments held for long periods over ones sold more frequently.

ENCOURAGING INNOVATION AS A FORCE FOR GOOD

The intellectual power of the finance sector should be wholly focused on creating innovations that are socially useful. Regulation and the tax system should reward simplicity, transparency and diversity for the customer, and penalise complexity, secrecy and rent-seeking by the finance sector.

• Proportionate regulation should be introduced speedily for new finance products and innovative business models aimed at making financial services more inclusive and accessible, or accelerating funding to the real economy, for example peer-to-peer lending or equity crowdfunding.

• Policymakers and regulators should have ensure they have the skills and resources to support innovation and competition with the existing system, as well as within it.

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So far supported by:

The Finance Innovation Lab

New Economics Foundation

Share Action

Positive Money, 

Move your Money

Friends of the Earth

Ecology Building Society

SPICE

If you would like to add your organisation’s name to this list, please use the form here (below).