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Our goal is to have a banking system that is resilient and effective and that directs credit to productive use without extracting economic rents or transferring credit risk to society, and financial markets that encourage productive investment in the real economy and discourage excessive or harmful types of speculation.
Before our vision can be realised, our leaders and civil society must act together to break the intellectual capture and dominance of the powerful financial industry lobby. To achieve this, Finance Watch is advocating public interest outcomes in financial regulation and building the capacity of civil society to act as a counterweight to the financial lobby. Through educational material such as webinars, multimedia dossiers, infographics etc., we help interested citizens to better understand the debates around financial regulation and its impact on their lives – because we cannot leave finance to experts!
Finance Watch’s mission is summed up in our motto: “Making finance serve society”.
In the wake of the financial crisis that began in 2007, increasingly technical financial legislation came through Brussels. At the same time, a group of European Parliamentarians noticed that they were being inundated with requests to meet representatives of the financial industry. As they feared that an imbalance in lobbying could lead to undemocratic outcomes, they called for the creation of Finance Watch as an independent, public interest advocate. The founding General Assembly of Finance Watch took place in Brussels on 30 June 2011.
More than 30,000 citizens who want to see finance do a better job of serving society support and closely follow our work, by receiving regular email newsletters with updates on key financial reforms in Europe, by following us on Facebook, Twitter or YouTube or by making a donation to Finance Watch. Popular support for our mission is essential as it helps to sustain political interest in financial reform.
Finance Watch works together with more than 40 member organisations including consumer groups, trade unions, housing associations, think tanks, environmental and other NGOs from a dozen different European countries as well as around 30 individual expert members. In total, they represent the interests of millions of European citizens. Together, we are building an EU-wide network of civil society actors committed to making finance serve society, meeting regularly to share our expertise and coordinate our actions on financial reform.
According to a 2014 survey, the financial sector employs 1,700 lobbyists in Brussels and spends at least €120 million a year on lobbying the EU to influence and water down financial regulation, outspending other actors by a factor of 30. This huge imbalance between financial sector lobbying and civil society remains a serious problem and this is where Finance Watch comes in: our staff of 13, including experienced investment bankers and former finance industry specialists, makes sure that not only private, but also public interest is represented and that the voice of civil society is heard clearly.
Source: “The Fire Power of the Financial Lobby”, Corporate Europe Observatory (CEO), The Austrian Federal Chamber of Labour and The Austrian Trade Union Federation, April 2014
Retail investors and savers need strong regulation to ensure that they are not being sold inappropriate financial products. Increasingly, they also want to know what their money is being used for, as awareness grows that investment has broader economic, social and environmental consequences. Regulation therefore needs to make it easier for consumers to choose and compare products, and easier for consumers and the people selling to them to understand the products. Similarly, savers need to know what their bank is actually doing with their money. Furthermore, investors and financial sector workers need to be protected from bad sales incentives. Inducements paid to distributors of financial products create conflicts of interest that endanger the quality of advice given to retail investors. In a similar fashion, excessively complex or misleading investment products offered to non-professional investors should have a clear warning.
The deregulation of financial markets has undermined their primary objective of channelling savings and capital to the most promising economic developments. We now face an urgent need to re-direct capital away from short-term, speculative use to long-term investment in the productive economy. Markets need regulatory incentives to ensure that they deliver the social and economic benefits of cost-effective resource allocation and financial stability. Finance Watch advocates for simple robust financing channels, such as traditional banking that focuses on lending to non-financial corporations and households, instead of promoting the investment-banking model that needed to be rescued with taxpayers’ money.
In the past 15-20 years some banks have grown out of all proportion to the economy, mainly by increasing the amount of financial trading they do with other financial firms. They are now too-big-to-fail (TBTF), forcing policy makers to rescue them with taxpayers’ money in case of failure because there is a need to protect the core banking functions that these same banks perform: keeping deposits safe, providing credit, and maintaining the payment systems. You could also say: governments are held hostage. While some progress has been made, a lot remains to be done to address TBTF, if we want to reduce the risk of a new financial crisis. Finance Watch advocates for a structural reform of megabanks (separation of deposit-taking from investment banking) and for limiting the debt that banks can pile up (‘leverage cap’), among other measures.
The complexity of the financial sector and its activities combined with the very influential financial lobbies make it difficult to voice the concerns of citizens and the public interest when it comes to finance and financial regulation. Finance Watch is convinced of the need to restore the purpose and the democratic accountability of financial institutions and financial regulation. It is not enough to have transparency and accountability about political measures, there needs to be a permanent and genuine engagement of organizations and individuals representing society at large in setting the financial reform agenda, in implementing financial reform, and in overseeing the compliance of regulated entities with the rules and monitoring the evolution of their performance. This requires, in addition, a constant, active pedagogical approach from actors of the financial system at large, with the support of specialized civil society organizations.
It is estimated that to avoid the most damaging effects of climate change, over the next few decades we can at most emit a quantity equal to about 20 percent of total proven fossil fuel reserves. Given fossil fuels’ omnipresence in our economies and lives, leaving them in the ground will have important implications, starting with the value of the very assets.
The market value of fossil fuel reserves today – including the 80 percent that can’t be burned, valued at around $20 trillion – reflects the perception that they are going to be exploited and burned. However, that conflicts with the imperative of limiting greenhouse gas emissions. This divergence in perceptions creates “a situation where asset prices appear to be based on implausible or inconsistent views about the future,” also known as the carbon bubble. The unburnable reserves are seen as stranded assets. […]
One of the big challenges is how to absorb the multi-trillion dollar write-off of fossil fuel assets in the least painful way for everyone, especially for the least wealthy.
Source: “Carbon Bubbles & Stranded Assets”, World Bank, Development in a changing climate, 2014, our highlight.
Several studies have shown that excessive financialisation and the deregulation of the financial sector are contributing to increased income inequality. Widening income inequalities were identified at the 2014 Davos summit as one of the key causes of deficient aggregate economic demand.
A person needs to possess only €3,300 in financial assets such as savings, deposits, stocks and loans (debt already deducted) to be among the wealthiest half of world citizens. However, more than €70,000 is required to be a member of the top 10% of global wealth holders, and €722,000 to belong to the top 1%. Taken together, the bottom half of the global population own less than 1% of total wealth. In sharp contrast, the richest decile hold 87% of the world’s wealth, and the top percentile alone account for 48% of global assets.
Sources: “Global Wealth Report 2014”, Credit Suisse Research Institute, October 2014; “Financialization and its Consequences: the OECD Experience”, by Jacov Assa, January 2012
Since 2010, central banks of the major economies began to create an extraordinary amount of liquidity. These unprecedentedly large volumes of liquidity are currently coursing through highly liberalized capital markets. In the absence of a corresponding increase of demand for credit for productive activities in most economies (low GDP growth), financial flows are being diverted to portfolio operations. In consequence, between mid-2010 and the end of 2013, the global stock market index more than doubled and financial markets in general remain highly volatile. These are perfect conditions for a new financial bubble to burst!
Sources: “Trade and Development Report, 2014” UNCTAD, September 2014; World Economic Outlook Database IMF, checked in 2015
Financial markets are far larger than is necessary to serve the real economy. Today, total financial assets are nearly 10 times the value of the global output of all goods and services, equivalent to $100,000 for every man, woman and child alive. The most immediate effect of this capital superabundance has been to paralyze, confuse and distort investment decisions. Large financial flows are creating dangerous pockets of excess capital in some places, while simultaneously cutting off access in other places.
Source: “A World Awash in Money”, Bain & Company, 2012