Whilst the rest of the world’s population continues to pay for the global financial crisis with their jobs, homes, education and health, and as bankers continue to award themselves millions of dollars in bonuses, such as the UK bank Barclay’s Chief Executive, who last year alone earned no less than $26.9 million; the Venezuelan government has increased the percentage of net profits which banks must grant in credit to national social programs, demonstrating what a regulated and socially orientated banking system could look like for the rest of the world.
Published in the government’s official gazette this week, Venezuelan banks will now be obliged to contribute 15% of their yearly earnings to securing housing as a constitutional right for the nation, as part of a government drive to create a social banking system which contributes to the development of society as opposed to simply siphoning off its wealth.
The measures specify that of the 15% that Venezuelan banks will be obliged to invest in the public interest, 66% must go towards granting credits for house building projects, 26% towards credit for house buyers and 8% towards credit for carrying out improvements, extensions and self-construction projects on citizens’ first homes.
Importantly, of the 66% designated for house building projects, 55% must go directly towards the government’s Housing and Environment Ministry for the government’s Great Housing Mission, which aims to build 2.7 million free houses for low income families before 2019, whilst 40% of these credits must go towards the construction of houses for families whose household income is no more than 6 times the national minimum wage. Not only will the banks have to file a report each month with the state’s Housing and Environment Ministry to ensure that these specifications have been met, but the ministry’s bank will also select which construction projects are to receive financing.
“These resources are a product of an increase in deposits in current and saving accounts, that is why they should go towards, in agreement with the Law on Banking Activity, the areas that are considered to be a priority and to be in the national interest by the Executive,” said Ricardo Sanguino, President of the National Assembly Commission for Finance and Economic Development.
This is indeed a stark contrast to the United Kingdom, where last week it emerged that the government had been forced into handing over £20 billion in taxpayer’s money to UK banks so that they would finally lend to small businesses, which have been denied credit en masse since the financial crisis hit; despite the fact that small businesses provide more jobs than larger firms in the UK and that the government maintains that they will be key to the creation of employment in the future.
It is not that Venezuelan financial speculators and bankers care more about the wellbeing of the national population, but rather that Venezuelans are in the fortunate position of having a national government which prioritises their life quality, wellbeing and development over the health of bankers’ and lobbyists’ pay checks. If the 2009 financial crisis demonstrated anything, it was that capitalism is quite simply incapable of regulating itself, and that is precisely where progressive governments and progressive government legislation needs to step in.
Following the 2009 financial crisis, the Chavez government undertook a series of measures aimed at reining in the unfettered speculation of the banking sector and subjecting it to state regulation. Today, 10 out of the 25 banking institutions now operating in the country belong to the state, with 6 of them being development banks.
As well as nationalising Venezuela’s third largest bank in 2008 and merging 4 banks in 2009 to create the government’s Bicentenary Bank, the government passed progressive legislation in 2010 with its Law on Banking Sector Institutions, which to the cries of the private media and speculators everywhere, defined the industry as one of “public service”. As a public service, this law specifies that 5% of banks’ net profits must go towards funding community council projects, designed and implemented by communities for the benefit of communities.
In terms of regulation, not only does this legislation limit the amount that banks can lend out in a single transaction to no more than 20% of their capital, but it also prevents banks from participating in brokerage firms and insurance companies, as well as from forming financial enterprises with other sectors of the economy; minimising financial risk taking and speculation. The law also protects bank employees by requiring banks to put 10% of their capital into a fund for wages and pensions which can be used in the event of bankruptcy.
According to other legislation also passed in 2010, the Law of the National Financial System, through restructuring the banking system, the government is attempting to “orientate the use and investment” of the banking system’s funds towards the “public interest,” in order to “really create a social state of law and justice”. The Law of the National Financial System also outlines the legal framework through which the Venezuelan people can “participate and supervise the management” of the country’s financial system through “social control” of the sector. Again, a far cry from the UK, where banks such as Northern Rock were nationalised with public funds, with the profitable parts of the bank then being sold back to private sector hawks such as Richard Branson at half the price. With absolutely no referendum, consultation process or input from the UK taxpayer.
Right now in the U.S. and Europe, it is painfully clear that the banks are firmly back in control, with no concrete measures having been adopted to curb their autonomy. In financial hotspots such as New York and London, banks are what continue to make the world go round for the movers and shakers of the city, who continue to perpetuate the myth that banking institutions are great wealth creators and are as such untouchable.
In the midst of the human fallout from the banking crisis, it is hard to maintain this mantra. The movement of banks into speculation and stock broking has turned the international banking system into a global casino which has everything to do with the uninhibited flow of great sums of capital but nothing to do with the creation of wealth; much less to do with human development. In Venezuela, this vision is being reconceptualised so that banks have a socially productive role, as opposed to a parasitic one.
Evidently, it is the lack of initiative on the part of governments in the U.S. and Europe to bring banks back under the control of the state through regulation and legislation, and not the lack of an alternative, which has meant that the autonomy of the banks has gone virtually unchallenged in wake of the financial crisis. Because Venezuela has proved that, despite the globalised nature of the banking system, these changes can be implemented when the government is on the side of the people and not the financial institutions.
Whilst funds from banks in Venezuela are going towards the construction of free housing and the maintenance of social programs for the benefit of the country, paradoxically people in the U.S. and Europe are being forced out of their overly priced housing in order to maintain a defunct financial system. Not because there is no alternative, but because their governments continue to be wedded to the great wealth creators for the 1%.
Edited by Venezuelanalysis