Alison Johnstone: Time to break up mega-banks

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Is it Bash-a-Banker season again, so soon? We’re witnessing yet another phoney row between London politicians about the financial sector – a sector that provides a big chunk of Edinburgh’s employment.

We’ve heard suggestions that the big banks would be forced to sell off branches if Miliband became Prime Minister in 2015. The big five – HSBC, Barclays, RBS, Santander and Lloyds – account for 90 per cent of the market. It’s clearly unhealthy, in the same way as four supermarket chains controlling our shopping.

Amid all this is the strain on individuals, both those who face being laid off as giant banks try to get back to business as usual, and those whose small businesses are struggling to grow due to the lack of lending. We know that RBS is preparing to shed thousands more posts on top of the 40,000 already axed since the crash in 2008.

But while Westminster tiptoes around the issue, here in Scotland we have a golden opportunity to achieve stability, along with genuine reform. We could protect those finance jobs that are so valuable to our economy, while allowing banks to make reasonable profits. Crucially we could boost lending to the small businesses that are the backbone of our economy.

RBS is publicly-owned. The Scottish Government should negotiate with the Treasury to transfer the domestic banking operations of RBS in Scotland to a Scottish subsidiary. These assets should then be split into a network of banks serving only their region – a model widespread in countries such as Germany, with its Sparkassen.

These banks would be private, run by professional bankers and could share their existing systems to bring down costs but each bank would serve its city or region and be governed by local stakeholders.

I sit on the economy committee at Holyrood and we’ve heard about the weak lending to small businesses. By contrast Sparkassen banks actually increased their lending to small enterprises and the self-employed during the crisis. We also heard about Islamic banking, which has much to commend it with its commitment to ethical investment and its restriction on interest.

Breaking the dominance of complex mega-banks and setting up local banks to better serve small businesses is obvious. Instead of tinkering at the edges of a failed model we should find a new way that leaves behind the casino culture that continues to cause so much pain.

• Alison Johnstone is a Green MSP for Lothian