The Financial System After Coronavirus

The 2008 global financial crisis put a spotlight on the systemic failings of the financial sector. It drew attention to harmful financial instruments, cultures of recklessness and greed, financial deregulation, and conflicts of interest across the sector, amongst other things. And yet there was very little structural change to finance after 2008. The absence of a coordinated movement, lobbying, and the dependence of other parts of the economy on finance prevented the transformation that was needed.

The 2020 economic crisis, prompted by the coronavirus outbreak, is in some ways different. The finance sector is a less obvious villain (though even the label ‘financial crisis’ did not stop claims that finance was not to blame in 2008). There is a risk that the economic fallout from the pandemic will be presented as an unavoidable result of an unavoidable pandemic, rather than a crisis whose character exposes the inequalities, instabilities, and injustices built into our social and economic system. It is up to all of us to correct that misconception, and to tell a fuller and truer story of what has happened that mobilises people to take action in the months to come.

Part of that fuller and truer story of the 2020 crisis must focus on finance, which has not been irrelevant to the events around the coronavirus pandemic. Black Lives Matter protests, and public debate about monuments and statutes arising out of those protests, have highlighted the colonial roots of modern-day British finance: in particular, the role played by City of London banks in funding and benefiting from slavery.^1 There is not the space, nor has enough time passed, for a complete account of the role of finance in the crisis to be given here. Instead what follows is a set of suggestions for areas around which policy demands could coalesce, in relation to domestic and international finance.

The Financial System in the United Kingdom

Coronavirus has impacted different parts of the finance sector in different ways. \$26 trillion wiped off the value of global equity markets on 23 March, affecting share owners as well as pension and insurance funds; oil prices have plummeted over specific periods; and there have surging attempts to sell all currencies except dollars.

But credit has still been needed, in particular for governments.^2 There have been reports of hedge funds making massive successful bets on the economy, with Westminster-based Ruffer Investment making £2.4 billion on a series of trades in March.^3 Tory donor Crispin Odey’s fund Odey Asset Management made a 21% return in March.^4 One investor report (focusing on the United States) noted in late March that “banks are much better positioned today than they were during the financial crisis”, and commented that “active asset managers with heavier exposures to money market funds and fixed income will see some benefit”. It suggested that “financial exchanges and data companies should be relatively stable,” and that “higher market volatility should boost trading activity in equities and derivatives.”^5 Another advisor’s report recommended investments in the financial services sector, arguing that it remained under-valued. The report noted likely unemployment, corporate bankruptcies, low interest rates, and flat yield curves, but said “even after incorporating those factors into our forecasts, we still see some value.”^6 Central bank and government stimulus interventions appeared to be successful in protecting the stock market, as well.^7

It was reported that private equity, which has “mushroomed” recent years, was “winning the coronavirus crisis” in America through seeking access to bailout money.^8 In the United Kingdom, the extractive model of private equity — involving short-term takeovers and ownership, the replacement of management and workforces, the use of loans and offshore tax havens — has been linked to the crisis of privatised care. As Sheila Smith has pointed out, Four Seasons failed “because of cash as a result of private equity ownership, which loaded the care homes with debt and rent obligations”; four of the five largest care home chains have owners based in tax havens; and 16% of the weekly fee per bed in privatised care homes is paid on interest on debt taken on by private equity to buy the care homes. Private equity was also directly engaged in a series of booming industries prior to the coronavirus crisis, such as those companies involved with full-fibre broadband.^9

All in all, then: finance has been connected to some of the worst outcomes of the crisis, and has in some instances benefited from the crisis (though in other areas it has faced reduced returns along with the rest of the economy). The policy response within the United Kingdom must reflect what has been learned during the pandemic — and be part of a programme for an economy that is more just, more robust, and more democratic than it was prior to the crisis. We are likely to emerge out of a period of sustained volatility. Against that backdrop, a small levy to stabilise financial trading — and to provide additional revenue to ensure public services are maintained and expanded after the crisis — makes good sense. One model that has already been designed by ex-traders and experts applies a charge to corporate bond trades, certain equity and credit derivative trades, spot and derivative forex trades, spot and derivative commodity trades, and interest rate derivative trades. In a fifth year of its operation, it was estimated that this would raise just under £9 billion for the Exchequer, which would provide a hugely welcome boost to public services as well as ensuring that the finance sector pays its fair share in the recovery.^10 Other steps, including greater public control or oversight of pension funds and more structural ring-fencing of banks, should be considered to bring heightened security to the finance system.^11

Some trades need to be stabilised, but others should not be happening at all. Short-selling, hedge funds, asset management, and private equity have all come under some scrutiny in recent years but far stronger regulation is needed, including of shadow banking. There is a need for a robust government-led green finance strategy, as well as a public taxonomy of green and brown activities in the finance sector.^12 Better regulation will only occur with greater democratisation of financial regulation in general. Technocratic-seeming institutions such as the Financial Conduct Authority are not fit for purpose, and successive British governments have been laissez-faire in determining ‘the regulatory perimeter’. Public ownership of industries, discussed in another position paper, should be championed not only as a way to coordinate the delivery of key strategic services — but also as a way to definancialise the economy and to restore balance in the economy overall. Public broadband, for example, would restrict the capacity for private equity to exploit opportunities in the full-fibre broadband market.

The finance-property nexus must also be challenged. In recent years financial funds investing in property have risen to prominence (with the Woodford Equity Income being one example of a fund deeply enmeshed in ‘illiquid assets’, from which money could not be quickly recovered in the event of a collapse). But there has also been evidence, through the work of Graham Turner and others, of a major imbalance in bank lending, with a focus on real estate over “sectors that are critical to the potential growth path of the UK economy”.^13 According to Turner’s 2018 report, there was a significant deposit deficit (where there is more lending than depositing) in buying, selling, and renting of real estate; sectors where there was much less lending than depositing included manufacturing, information and communication, and ‘professional, scientific and technical activities’.^14 The report suggested that this revealed “banks’ skewed priorities”^15 and a “bias towards real estate”, stemming from real estate lending appearing safer and easier to assess.^16 It argued that “bank lending is one channel through which the Bank of England can promote strategic industries”.^17 Credit guidance to encourage lending for green and productive industries and a National Investment Bank (discussed in the position paper on long-term green investment) are partial solutions to this lending imbalance problem. These are important steps to take as part of a recovery that builds a healthier financial sector and broader economy.

The Global Financial System

But any discussion of finance is artificial and overly narrow if it does not also consider the UK’s place in a global framework, whose weaknesses have also been revealed in the early months of the coronavirus crisis.

Research by the Transnational Institute and the Corporate Europe Observatory has shown that a number of corporate law firms with offices in the UK have been seeking to “cash in” on the pandemic by using trade and investment agreements to challenge government action taken to protect communities from coronavirus.^18 These agreements allow for ‘investor-state dispute settlement’ in tribunals away from domestic courts. Often public health or other regulatory measures are challenged as a form of ‘expropriation’. Quinn Emanuel, a firm with a London office, has said: “investors in the healthcare industry could … have indirect expropriation claims if turning over control was involuntary.”^19 Shearman and Sterling, also a firm with a London base, made comments threatening proposed action on utility bills: “If suspension of payments to utility companies leads to bankruptcy, the question will arise whether the State considered appropriate financial assistance to address the suspension.”^20 Another law firm referred to debt relief measures as “sufficiently harmful to financial sector investors so as to give rise to investment disputes.”^21 There have now been 1,000 investor-state lawsuits over the 25 years. It is increasingly clear that these are one-sided tools to attack state regulation and redistribution in the public interest, and to defend financial interests under the guise of ‘international investment law’. An entire overhaul of trade and investment agreements is needed, beginning with a withdrawal from existing investor-state dispute settlement clauses and a commitment to no clauses being inserted into future agreements.

The World Trade Organisation, which has some role in setting trade rules, has already lost significant authority — after the US blocked the appointment of appeal judges — but the World Bank and International Monetary Fund have also come under considerable scrutiny in their actions responding to coronavirus. As noted in another paper, their approach to debt relief has been profoundly inadequate, failing to recognise the unjust burdens countries in the Global South face (because of the history of imperialism and structural adjustment policies) as they prioritise public health investment.

Both institutions have also shown themselves incapable of acting to support the Global South in relation to capital outflows. IMF Managing Director Kristalina Georgieva said on 23 March that “emerging markets and low-income countries … are badly affected by outward capital flows”, noting that “[i]nvestors have already removed USD \$83 billion from emerging markets since the beginning of the crisis, the largest capital outflow ever recorded.”^22 But Georgieva said very little about what the IMF could do to affirm or back countries in this affected position, mentioning lending capacity, emergency finance, and “bilateral and multilateral surveillance”. That the IMF and World Bank have been unwilling to lend their support to tax or regulatory measures to stem those outflows shows that these are institutions wedded to neoliberal and capitalist ideology, despite occasional protestations to the contrary. These worrying trends add weight to calls for the abolition of the IMF and World Bank, and the replacement of these organisations with international institutions better able to coordinate progressive taxation, social protection (including public health), reparative justicce, and environmental action at the global level. There is a risk — with President Donald Trump announcing his withdrawal from the WHO, the IPCC climate talks postponed for a year, and states slow to convene a meeting on an international response (in contrast with the response to the crisis in 2008 and some limited virtual G20 meetings aside) — that a vacuum of internationalism will be left if the IMF and World Bank are abandoned. There is a need for the transnational solidarity that has emerged, in the wake of coronavirus and in the aftermath of the murder of George Floyd (and other violent police racism in the United States), to be harnessed to breathe new life into internationalism in the twenty-first century.

The foundational historical linkages between many financial firms and slavery, mentioned at the beginning of this paper, must also be reckoned with — and another Claim the Future position paper sets out a demand related to the United Kingdom’s payment of reparations, a demand that requires an accounting by the finance sector for its role in the history of imperialism and slavery. (A separate position paper on debt addresses action on overdraft costs, also relevant to the financial sector.)

This is by no means an exhaustive agenda for action on finance. But a financial transactions tax, radical financial regulation, challenging the property-finance nexus, overhauling free trade agreements, rethinking international institutions, and mobilising for the payment of reparations provide provisional demands for a movement to be built out of the horrors of this crisis.


^9: See, e.g.,

^10: Some commentators have suggested the European Market Infrastructure Regulation is a useful indication of other authorities recognising the varied utility of different financial instruments.

^11: See discussion in

^12: See Finance and Climate Change: A Progressive Green Finance Strategy for the UK (Report for the Labour Party, 2019), available online at

^13: at p. 80.

^15: Ibid, at p. 83.

^16: Ibid, at p. 86.

^17: Ibid, at p. 85.