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From Survey, International Socialism (1st series), No.50, January-March 1972, pp.2-5.
Transcribed & marked up by Einde O’Callaghan for ETOL.
Our story begins in March 1971, when Mr Barber had a brainwave and subject to pressures which were then unknown, he announced a radical change in Britain’s financial system. The basic scheme was decided by July 1971 after discussions between the Bank of England and the four clearing banks. The Government’s ceiling limits on lending by the banks and financing houses were subsequently abolished and from 1 October the cartel agreements among the four big banks which fix maximum interest rates on deposits and minimum lending rates were abolished. The Bank of England saw no need to put any limit on the terms offered by the banks for deposits to protect the position of building societies and savings banks. Mr Barber’s concessions immediately raised the chief manager of Barclays, Derek Wilde, to an ‘immensely satisfied’ state. (Financial Times, 11.9.71).
Banks can now quote individual payment rates for a deposit and overdrafts, subject only to holding a minimum reserve ratio of 12½ per cent eligible reserve assets to eligible liabilities. This means that Barclays, Lloyds, Midland and National Westminster (with total of £12 billion deposits in 1971) can now tap growing outside sources of funds and lend them out in the most profitable areas with none of the previous restrictions.
‘“A Milestone in Britain’s Monetary History” Mr Barber’s claim that he is introducing the change “to shake the position of the four great clearing banks” is merely a “nominal concession to competition with no definite operational effects”.’ (The Banker, Oct. 1971)
On 11 September the Financial Times editorial was heralding the change as a restoration ‘of market forces and the price mechanism to the role of principal arbiter of the allocation of credit’; by 28 September it squeaked from the very same place ‘it is not inconceivable that the Monopolies Commission which once described the clearing banks as somnolent may one day criticise them on different grounds’.
Even in the early sixties the four clearing banks were creating networks of secondary banks to bypass the cartel restrictions and obtain a considerably higher interest rates on loans than their parents. They became instrumental in local authorities’ markets, higher purchase finance market, interbank and inter-company deposit markets and the sterling Certificate of Deposits market, which in particular, has eaten away the Discount Houses’ holdings of public funds. Now the chairman of Lloyd’s 300-odd syndicates, H. Manse, foresees attracting new depositors ‘thus undermining building societies, saving banks (killing the PO Giro?), stockbrokers etc., and the ability to move into the merchant banks’ domain with its wide international connections and profitable fee-paid services to big companies about mergers’.
Meanwhile, we turn to another vested interest. In the three years before mid-1971 the deposits of American banks in London grew from only £3¼ billion to £12½ billion. These banks have been hemmed in by USA’s anti-monopoly bank controls from going freely along the road to industrial dominance. They have become flexible speculators who know how to overcome national barriers and have taken over London Merchant Banks former lead in knowledge of what is happening in Europe’s financial centres. Now they too are given more freedom for manoeuvre and in Great Britain the City has none of America’s anti-trust controls (e.g., Regulation Q) on bank mergers and discretionary powers.
How the Chancellor hopes to control the expansion of credit and reduce inflation or to refund the national debt is not at all clear. At present banks have ample supplies of liquid assets on the basis of which they can offer advances. But if, in a recession, the banks do find they are creating credit on only 12½ per cent eligible reserve assets the Chancellor hopes this one remaining control will limit their freedom to accept overdrafts. The Bank of England’s traditional means of supposedly reducing expenditure and inflation and inaugurating a recession (’The Stop’), was to raise interest rates and to sell Government securities. But it could also order ceilings on loans and ration credit qualitatively. Now its sole tool will be to drive up the cost of credit (the interest rate) leaving the banks to ration credit according to their own discretion. Thus the ordinary unprofitable borrower will, as the Guardian, 11.9.71, foresaw, ‘suffer from long periods of high overdraft rates’. Certain interests in the financial world have succeeded also in excluding free money from the category of eligible reserve assets which means, virtually, a differential tax on banks providing cheques and transaction services for the man in the street, in favour of those that cater for savings deposits and provide substitutional facilities to important holders of financial assets.
It is doubtful that a squeeze would even pinch the four large banks because they will have cushioned their position on two counts:
Thus whenever and wherever there is a shortage of long-term finance and especially in a recession, the Government and industry will depend more and more on the big banks for their supply of liquidity. Public expenditure will vary more and more according to Wilde’s profit hunting pursuits. Cuts in welfare benefits and all types of unprofitable government expenditure are inevitable. The system will find it increasingly difficult if not impossible, to meet demands for reform. The futility of government plans will become ever more evident as a few powerful bankers become the central and uncontrollable allocators of credit. Meanwhile monopolies and large companies, that have the easiest access to bank advances and facilities will be fostered; will more easily misuse money on status symbols, unproductive investments and increasing exploitation of workers.
As Britain’s central sources of liquidity and major bankers have seized their big chance to be the promoters and oilers of capital accumulation. This is the most important step that Mr Barber has taken towards barbarism. Contradictions between revealed aims and actual manoeuvres are ever-growing behind the camouflage of obscurity that shrouds financial affairs. Workers’ wage demands, are flourished’ like a distracting flag, as the cancer causing capitalism to grind to impotency in its old age with an over-inflated belly. There will come a time when the working class can no longer act as the old man’s palliative; no pill will cure the corruption. But until then our ‘somnolent’ giants must be watched; their ‘ gentlemanly ‘ pacts, which afford not a single word in Parliament, must be exposed; and the blame for far-reaching effects in British working methods must be traced to their feet. Victor Serge wrote in Birth of our Power of the vital need to take the centre of power:
‘If we are beaten, other men infinitely different from us, infinitely like us, will walk, on a similar evening, in 10 years, in 20 years (how long is really without importance) ... But they will take the city.’
(27.10.71.)
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