THE Tory Chancellor of the Exchequer, Philip Hammond, and the Governor of the Bank of England, Mark Carney, were forced to sit a test yesterday administered by officials from the US Federal Reserve and the European Central Bank.
The only question put to these two was simply: what will you do if a major international bank crashes?
On the surface this test – referred to appropriately as a ‘war game’ – is designed to show up any weaknesses and point to improvements in the bank regulations that would prevent the entire financial system crashing.
These war games are a sign of the acute fear rampant amongst the central bankers that a major banking collapse is not just a possibility but is fast becoming a reality. The International Monetary Fund (IMF) in its latest financial stability report finds that a quarter of the banks in the advanced Western economies, with assets of over $11 trillion, are weak and vulnerable even if the world economy recovered to pre-2008 levels.
Given that the world capitalist economy is showing no signs of recovery, with manufacturing industry declining across the world to the point of a slump, this means that, even on their own optimistic estimation, a quarter of the banks are going to go bust.
Of these, Europe’s largest bank, Deutsche Bank, is right in the firing line, having lost 43% of its share value this year alone and now facing a $14 billion fine for mis-selling mortgage-backed securities in the US – a fine it simply cannot afford to pay.
The Bank of England’s Financial Stability Board (chaired by Carney) has reportedly drawn up a list of 30 banks that pose the greatest risk to the global economy if they collapse.
Of these thirty, Deutsche has been pushed off its top spot with the FSB judging HSBC and JP Morgan as the most systemically important. These war games do not just involve the British; representatives of more than 140 eurozone banks will also be involved for the first time.
As the crisis of the capitalist banking system reaches breaking point, all the corrupt practices of the past are being exposed. In the UK, the latest scandal to erupt concerns the Royal Bank of Scotland. Leaked documents made public yesterday showed that RBS profited from the activities of its ‘Global Restructuring Group’.
On paper this group was supposed to support business but in practice it is alleged (allegations that appear to be substantiated by the leaked documents) the bank was more interested in driving companies out of business and then buying up their property and premises at a knock-down price in what one RBS executive quoted in the documents described as ‘Project Dash for Cash’.
RBS, which is publicly owned, saw its share price crash on Monday as this latest scandal broke. The bank already faces potentially multi-billion dollar fines in the US for its involvement in mis-selling and now faces huge claims at home.
RBS, along with Lloyds and HBOS bank, had to be bailed out in 2008 when the Labour government pumped £37 billion into them to stop them going bust. They effectively nationalised the debt of the banks while leaving the bosses in charge carrying on as normal.
Now the working class will be expected to pay for this latest crisis. With the banks, as always, too big to fail, they will demand to be bailed-out yet again only next time the scale of any bail-out will be titanic.
These war games are in reality preparations for the real war – the war against the working class to impose the full burden of the bank crisis on their backs. It cannot be done in any peaceful way, only through the capitalist state shedding its democratic facade and organising to smash the working class and its unions.
For the working class, the issue is to immediately prepare for this class war by mobilising its huge strength in a general strike to bring down the Tories and advance to a workers government which will nationalise the banks and place them under the direct control of the working class as part of a planned socialist economy.
