The HSBC scandal rumbles on, and it’s only the latest of many scandals about the big banks to break since 2008.
Yet the mainstream debate never considers taking the banks under public ownership and democratic control, and radically transforming them. One or two top bankers caught particularly red-handed may be eased out, with lavish pay-offs and pensions. Some banks are nationalised, and handed to the same sort of managers as before, to be run as before, and privatised as soon as state aid can make them profitable again. That’s all.
All the mainstream debates assume that we need banks run pretty much like they are now.
77% of all wages are paid automatically into bank accounts these days; 96% of adults have a bank account. So most of us know banks as places which keep our monthly wages safer than they would be in our pockets or purses, and manage our payments.
All that could be done just as well by a public utility which kept count of our balances, managed payments by transfers between accounts, and ran a network of ATMs.
Done by a network of private-profit banks, it serves other purposes. As late as 2005, UK banks were boosting their profits by £30 million a year by taking several days to clear cheques and electronic payments.
Finland abolished cheques as long ago as 1993 — the technology was available back then — but in the UK, until the Faster Payments system began in 2008, transfers between banks by phone or internet meant a delay of a few days when you no longer had the money, but the person you were paying didn’t have it either.
Now the banks say they will probably soon introduce fixed charges (per month, or per transaction) on current accounts. For the time being, they improvise by levying disproportionate fees or fines for failed payments, unintentional overdrafts, currency exchanges, and so on.
All that is secondary. The fundamental thing banks do under capitalism is scoop up relatively small amounts of money from across the economy, transform them from being just money into being money-capital, and trade in that money-capital, especially by dealings with government debt.
If you have £10, it is just £10. It is not capital. You got it, probably, by selling an hour’s labour-power (a commodity), and with it you’ll buy other commodities: 12kg of potatoes, or 60 apples, or whatever.
If you have £10 million, it is different. You can use it as capital. You can buy machinery, supplies, the use of buildings, and labour-power, set production coming, and draw profits. Or you can lend the £10 million to someone who will give you a portion of their profits under the title of interest, or dividends.
The banks can collect together a million £10s, and make £10 million. And then they can draw a portion of the profits created in production by lending that £10 million to an industrial capitalist.
There are many additional twists. In the first place, the banks not only collect money. They create it.
Your £1000 monthly wages go into the bank. But the bank doesn’t keep a hundred ten-pound notes in its vaults in case you demand them. Overall, banks don’t need to hold in cash more than a tiny fraction of what is deposited with them. The bank can blithely lend your £1000 to someone else, and, short of a meltdown where no-one trusts banks and everyone wants to get hard cash, they’ll cover your demand to withdraw the £1000 from another flow, maybe from someone who withdrew £1000 the day before and paid it to a shop which holds an account with the bank.
The UK’s official figures for the total of “money” circulating in the economy (including bank deposits) is £2100 billion. Of that, only £62 billion is notes and coin. The rest is essentially created by the banks.
Despite the banks’ great ability to lend, by far the biggest part of sizeable industrial corporations’ investment is not financed by bank lending.
It is financed by the corporations’ profits, and secondarily by them issuing bonds or shares (essentially, types of IOUs). Banks mostly lend not to big industrial corporations, but to smaller capitalist concerns, to households, to the government, and to each other.
For a bank, getting your account is important as a hook to get you to pay for “financial services”. These may be just swindles, like Payment Protection Insurance, but the main form is mortgages. The direct exploitation by which the capitalist class extracts surplus labour from you at work is supplemented by another exploitation siphoning off mortgage interest and fees.
The banks hold about £1300 billion of claims on households for mortgages. But their total assets — around the same as their total liabilities — are much bigger.
Banks hold around £20,000 billion in financial assets — enough to buy up all the country’s physical assets three times over — or the equivalent of about £800,000 for each household in the UK.
The biggest holders of government debt (bonds) are insurance companies and pension funds, but the banks act as intermediaries in the bond trade and hold some.
As Karl Marx wrote: “[With the] national debt... a negative quantity appears as capital — just as interest-bearing capital, in general, is the fountainhead of all manner of insane forms, so that debts, for instance, can appear to the banker as commodities...
“The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Venice as early as the Middle Ages, took possession of Europe generally during the [17th century] ... National debt, i.e., the alienation of the state — whether despotic, constitutional or republican — marked with its stamp the capitalistic era...
“Apart from the class of lazy annuitants thus created, and from the improvised wealth of the financiers, middlemen between the government and the nation... the national debt has given rise to... stock-exchange gambling and the modern bankocracy...”
Banks deal in a wide range of forms of what Marx called “fictitious capital”. Shares and bonds appear as forms of capital “doubling” the tangible capital they represent on paper, and then financial derivatives double the doubling. All this whirl of paper increases the opportunities for banks to draw profits from fees (an increasing part of their revenues) and from differentials between interest rates here and interest rates there.
The more “financialised” capitalism becomes, the more surplus value is swirled round the financial world, and the bigger the cut of surplus value taken by banks and other financial operators. The share of total UK profits taken by financial sector firms increased round one per cent in the 1950s and 1960s to around 15 per cent in the years 2008 to 2010; in the USA, the financial sector’s share is 30% or more.
A public utility managing accounts and payments could also organise the supply of credit, allocating it according to socially-decided goals. Banks as they are now do not do that: mostly, they siphon off revenue as intermediaries in the flows of credit.
Some of what they do is just gambling, but gambling with a twist. If they win, they pocket the gains; if they lose, the taxpayer bails them out.
The British government laid out £1100 billion in cash, loans, and guarantees to save the banks in 2008. And since then the New Economics Foundation estimates that in Britain QE and similar policies have subsidised bankers by over £30 billion a year, by the Bank of England essentially lending them money for free. The financiers can extract these gains because they are the most centralised, compact, well-connected section of the capitalist class.