The Cost of Bank Insolvencies : A Socio-Economic Rights Analysis

High risk banking practices were a central factor of the financial crisis of 2007-2008 and the world is still feeling the aftershocks. Sovereign debt, austerity, and the degradation of social benefits, employee rights, and even the democratic framework of sovereign nations have been only some of the negative results. Given the complicated nature of modern financial markets, complex and remote financial instruments, and the banking industry, it is uncertain as to whether the current banking regulation and reforms can provide an effective safety net to avoid the social costs associated with future financial crises. It could be that it is time for a paradigm shift in the way in which banking and lending are approached from a philosophical perspective, taking into account a renewed understanding of the purpose and character of debt and lending, particularly when dealing with those debt transactions affecting individuals. Considering the juxtaposition of wealth maximisation, a fundamental aim of banking and finance, to the potential social costs when profit focussed activities go wrong, it could be possible that a neo-liberal and economically focussed approach to banking regulation and reform may need to be shifted to reflect the actual social costs of capitalism. The purpose of this paper is to examine the fundamental underpinnings of the UK’s approach to banking and lending with a focus on the apparent theoretical or philosophical approach to banking and regulation within the economy with reference to Coase’s “The Problem of Social Costs” and whether or not his framework of analysis is relevant to the regulation of today’s financial markets. The origins of the financial crisis in irresponsible banking and lending practices will be explored as well as the social costs the financial crisis and the specific impact of lending practices on the consumer. Historic views on debt will be presented with a view to tracing how those views have changed in the modern age, particularly in consideration of the banking industry’s approach to debt selling. There will also be brief look at some of the post crisis regulatory reforms that have occurred and a critical analysis of the neo-liberal economic approach in this area, followed by a conclusion that will comment on whether or not the current approach and underpinning theoretical framework can be adequate to circumvent the social costs of irresponsible banking practices in the future