We have seen it on the banners, heard it from the people on the streets or in protests that “The Bankers Are the Real Looters”. In the media too, there are programmes broadcasted these days about how the banking reforms could help overcome the current financial crisis.
But are the bankers really the only contributors to the current economic issues, and are the banking reforms going to help solve those problems?
Banking system in general is a faction of the capitalist class in our society; the other major faction is the industry. Whereas the role of industry is to profit by investing money in production, the role of banks is to lend industry that money and, in return, to receive a share of its profit in the form of interest. But don’t banks lend money to individual workers as well as to businesses? Yes, they lend workers money to buy a house or a car or some other big expenditure that couldn’t be paid out of monthly wages or salaries. Banks naturally charge interest on these loans but calculate that in time they will get both the interest and the loan back out of the future wages of the borrower. So, to this extend, workers are affected by the level of interest rates.
There is an idea suggesting that some kind of reform on the structure of the two types of interest would be beneficial to the worker-borrowers. This reformist idea suggests a low interest rate for the borrowers and high interest rates for the savers. But in reality, it is not possible to pay depositors a higher interest rate than that offered to borrowers, as banks (and building societies) get their principle income from the difference between the rate they pay depositors and the rate they charge borrowers. And in any event, this is an academic issue since interest rates are not fixed to benefit workers, and there is nothing workers can do to influence them.
Banking as a faction of the capitalist system, and a contributor to its internal conflicts, is of course also a contributor to the formation and continuity of the current financial crisis and an exacerbating factor, however, it is not the cause of the present slump, this was caused by capitalism’s tendency to overproduce for particular markets in a boom, not by monetary policy or institutional arrangements. Therefore, banking reforms in essence cannot eliminate the boom/slump cycle that is built-in to capitalism.