One of the demands of those economics conservatives, the British left and assorted progressives, is that we must have regional banks again. Because, you know, well, regional banks YEAH!
The problem with this being Chesterton’s Fence. We used to have regional banks, why don’t we now? Because we had them, the market considered them and then they all merged to become national banks.
But Chesterton’s Fence. Why did they merge?
Because a regional bank can cause terrible, terrible, problems if it gets into trouble:
From a distance, Vicenza does not look like a city engulfed in turmoil. On the elegant Corso Andrea Palladio, named after the Renaissance architect whose work defines this city, a finely dressed woman clutches a Chanel handbag during her evening passeggiata. Locals sit back and enjoy their Campari spritz cocktails in the July heat. A black Maserati rolls slowly down the street.
But this apparent serenity belies an ugly truth. The regions of Veneto, where Vicenza is located, and Tuscany are the epicentres of Italy’s banking crisis, which has cost citizens hundreds of millions of euros.
If there’s that one dominant regional bank then it getting into trouble can bring the whole region to its knees:
Wealthy northern Italian manufacturing strongholds like Vicenza were the financial engine behind Italy’s postwar economic boom, and are critical for the country’s hopes today. About 30% of Vicenza’s 100,000 companies have a direct relationship with BPV, according to Variati, and those companies need lines of credit and support.
“What I hope, as mayor, is that the bank stays as close as it can to the companies. Those 30% cannot be abandoned, they have to be supported if they are healthy. BPV will be able to survive over time if the territory is strong. There will be no future for the bank if the territory is poorer,” Variati said.
The flip side is also true. Imagine a regional economy with a strong specialisation. That major industry (and in Italy it’s likely to be a cluster, hundreds or thousands of firms all working in roughly the same industry. There’s one little area that produces most of the world’s spectacle frames for example) tanks, what happens to the bank?
Quite, that’s why regional isn’t the way to go, you want banks that are geographically diverse so they’re not exposed to that one industry or one geography risk.
Which brings us back to Chesterton’s Fence and why we used to have regional banks and now do not.
Why don’t we have regional banks? Until that question is answered, A Reverse Chesterton’s if you like, we cannot sensibly discuss whether we should have them again.
And of course the moment anyone says we should have local banks with local worthies (usually, local politicians, unions and locally based businesses) running them we have only to point to Spain’s cajas. Absolutely every one of which went bust from memory.