Much of the world’s population continues to pay for the global financial crisis with their jobs, homes, education and health. Bankers continue to award themselves millions of dollars in bonuses, such as the British bank Barclay’s chief executive, who last year earned US$26.9 million.
The Venezuelan government, however, has raised the percentage of net profits banks must grant in credit to national social programs. In doing so, it is demonstrating to the rest of the world what a regulated and socially oriented banking system could look like.
New reforms mean Venezuelan banks are now obliged to contribute 15% of their yearly earnings to securing housing as a constitutional right for Venezuelans. This is part of a government drive to create a social banking system that contributes to developing 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. This will help fund the government’s Great Housing Mission, which aims to build 2.7 million free houses for low income families before 2019.
A further 40% of these credits must go towards building houses for families whose household income is no more than six times the national minimum wage.
Not only will banks have to file a report each month with the Housing and Environment Ministry to ensure that these specifications are met, but the ministry’s bank will also select which building projects are to receive financing.
This is a stark contrast to Britain, where it emerged that the government had been forced into handing over £20 billion in taxpayers' money to British banks. This is so the banks 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 Britain.
It is not that Venezuelan financial speculators and bankers care more about the wellbeing of the national population. Rather it is that Venezuelans are in the fortunate position of having a national government that prioritises their life quality, wellbeing and development over the health of bankers’ and lobbyists’ pay cheques.
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.
After the 2008 financial crisis, the Venezuelan government of Hugo Chavez 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. Six of them are development banks.
As well as nationalising Venezuela’s third-largest bank in 2008 and merging four others in 2009 to create the government’s Bicentenary Bank, the government passed its Law on Banking Sector Institutions in 2010. To the cries of the private media and speculators, it 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, the law limits the amount that banks can lend out in a single transaction to no more than 20% of their capital.
It also prevents banks from taking part in brokerage firms and insurance companies, as well as from forming financial enterprises with other sectors of the economy. This minimises 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 that can be used in the event of bankruptcy.
Another law passed in 2010 was the Law of the National Financial System. Through restructuring the banking system, the government is trying 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 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, this is a far cry from Britain. There, banks such as Northern Rock were nationalised with public funds, with the profitable parts of the bank sold back to private sector hawks such as Richard Branson at half the price — with absolutely no referendum, consultation process or input from the British taxpayer.
[Abridged from Correo del Orinoco International. A longer version can be found at Venezuela Analysis.]
