Following my comments about the missing financial infrastructure in the UK, I was recently comparing theUSbanking and financial structures with our own.  Now, of course, their banking system has neither been angelic in its behaviour, nor unblemished in its history of probity.  After all, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass Steagall Act.  This act separated investment and commercial banking activities.  At the time, ‘improper banking activity’ – considered to be overzealous commercial bank involvement in stock market investment – was deemed the main culprit of the financial crash – any of that seem familiar?

In fact it stayed in place until being repealed in 1999 in order to liberate the banks to develop financially engineered products, which would diminish the risk in the entire system.  We can probably lay the blame for this at the feet of Alan Greenspan, who told President Clinton that the banks had agreed that ‘they would act more responsibly’ – his words.  Heavens, what would have happened if they had acted irresponsibly?

However, it has not just been the major banks.  In the late 1970s and early 1980s, there was the Savings and Loans scandal when the US equivalents of the UK building societies – “Thrifts” – went through a disastrous period following ludicrous lending by badly managed organisations when out of a total of 3234 Thrifts, around 750 went bust along with their customers’ savings, costing the Government some $88bn. Following this, many of these smaller operations were absorbed into larger financial organisations. However, just because banks are large and strong, doesn’t necessarily mean they are good – as recent events have so perfectly illustrated.

In the US, what they refer to as ‘Community banks’ can include a range of savings and loans companies and mutuals, but all focused on providing local services to local residents and especially local businesses.  There are at present over 7000 of them in the US which on a per capita basis, would mean that we should have an equivalent number of 1350 such banks in the UK.

Although we have a range of some 47 building societies and a number of smaller mutual loans companies, we actually have a relatively small number of banks in the UK designed to serve domestic customers (I exclude all those City of London based offices of overseas banks).  More recently we have seen some new entrants in the form of Virgin and Metro, and of course we should not ignore the growing presence of the supermarkets in this area.  However, what we have not had is a presence of local banks for local funding. Most of the financial services from the building societies and savings companies, as well as the supermarkets, are all aimed at the private consumer and not for the small business.  This is a key area which is missing.

Now, we could wait for free enterprise to set up such services, or wait for the existing players to expand into this area, but I fear that time is not going to be of any help here.  If there was a position for regional investment facilities to be provided then surely this is it?  Rather than being funded out of Government debt, let alone the deficit, far better it be funded by way of guarantee or Government tax incentivised investment fund.  Some imagination needed here and some courage not just to take action but to be seen to be taking action to counter the negative waves of news washing over us from most outlets.  The entrepreneurial spirit is there but it desperately needs the fuel to fire it up, especially as so many are leaving state employment and need to be triggered into having the confidence of ‘doing it for themselves’.

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And to continue my occasional commentary on the state and quality of the UK’s hotel scrambled egg – whilst finding that the number of scrambled egg offerings actually floating in water in those large catering vats has dropped, this seems to have been replaced by a new form of rubberised egg.  This exceedingly unpleasant creation means that your egg actually bounces when landing on the plate and even off it on occasion.  Its use as an edible item is extremely limited, but surely there must be some industrial application for this astonishing creation – industrial shock absorbers or adjustable landfill?  Either way, try not to eat it.

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And finally, on this day… the 20th of February 1472, Scotland annexed both the Orkney and Shetland Islands following the failure of Christian, King of Norway, Sweden and Denmark to pay a dowry for James III’s bride Margaret of Denmark.  Now she really should have had a ‘pre-nup’ agreement.  Just think how much North Sea oil and gas we would now be missing on the basis of a missing dowry!

Have a good week.

Justin Urquhart Stewart

Director

Seven Investment Management Limited