This alternative White Paper distills lessons for the reform of the financial
system from organizations that are designed to capture social and
environmental value, not just profit. In doing so it showcases examples of
enabling legislation and a wide range of alternative financial institutions
that could help the UK to develop the kind of diversity and dynamism
needed to create a healthy ecology of finance. These include:
* Credit unions, community development finance institutions and
community land trusts.
* Green investment banks such as the Nordic Investment Bank.
* The Community Reinvestment Act in the United States.
* The Mondragon Cooperatives and Caja Laboral Bank in the
Basque region of Spain.
* A Social Investment Wholesale Bank and innovations including
social impact bonds.
Recommendations
Policy-makers must act now to prevent a repeat of the kind of crisis that
has just occurred. We identify a series of interventions that we believe are
essential to rebuild prosperity, to support the most disadvantaged and to
ensure greater stability in the future.
Preventative measures must:
Separate out retail banking from other forms of banking by
preventing deposit-taking institutions engaging in a range of
financial activities.
Regulate financial institutions appropriately according to their
functions.
Regulate financial institutions according to the riskiness of their
activities, modified by consideration of their funding structure,
governance arrangements and scale (with capital requirements
being an increasing function of size).
Develop counter-cyclical macroprudential regulation to offset the
pro-cyclicality of the financial sector and encourage stability rather
than volatility.
To achieve the vision of a financial system that fulfills the core functions
the economy requires, reform will need to go beyond a focus on
preventing another crisis. The goals of the White Paper—including
greater competition in financial services, greater diversity in the sector and
a system that is capable of investing in the long term—will require
interventions that fundamentally alter the financial landscape.
nef recommends that reforms:
Put in place a Social Investment Bank at macro level, linked into a
local network of adequately funded community development
finance institutions (CDFIs) and other local financing institutions.
Establish a Green Investment Bank to channel finance towards
developing the environmental infrastructure we need, in such a
way that regional inequalities are taken into account.
Establish a national Post Bank based on the existing post office
network, to address financial exclusion and provide real, fairly
priced competition in local communities.
Encourage the expansion of existing mutual institutions and the
establishment of new ones, including from the remains of
bankrupt, nationalized banks.
Introduce legislation to harness the benefits of disclosure and
investment obligations, based on the Community Reinvestment
Act, to link large, commercial banks into an ecology of finance with
local, excluded economies.
