Jan Macháček


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Czech Business Weekly

FinMin goes populist with attack on banks

31. 10. 2005
All seemed quiet on the banking-Finance Ministry front until last week, when Finance Minister Bohuslav Sobotka announced an updated list of demands for commercial banks.

The government, saying it wants to improve banking services for clients, has renewed its pressure with one change: It no longer demands that banks provide clients with transferable account numbers. It’s waiting for a ruling from Brussels, which is currently discussing such a change for the whole common market.

Dozens of legislative changes, which would affect both banks and clients, are in the works. But the scale of these changes shouldn’t be taken too seriously. Eight months before the elections, this government’s ability to push through widespread changes is sorely hampered. It will, however, manage to get at least some of the changes through Parliament. And for an attack on “banking capitalists,” the Social Democrats (ČSSD) might get support from the Communists, the traditional critics of profit-making capitalists.

Sobotka and his deputy, Tomáš Prouza, are shooting fish in a barrel. Czech banks have foreign owners who don’t know how to swim in post-communist political waters, an environment better suited for directors and board members of partially state-owned companies like ČEZ. Big foreign corporate owners don’t know how to defend themselves effectively or how to lobby local MPs and politicians.

Sobotka’s attack on banks is mostly a populist move, but it contradicts the government’s lack of critisism of utility monopolists and rapidly growing energy prices. Here, there’s no tough regulation, no attack in the pipeline.

We should also call attention to the hypocrisy of the move. If Sobotka thinks the banks’ profits and prices for services are not justified by the quality of the services, how does he feel about the efficiency of his own ministry? How does he feel about the quality of government services in comparison with the overall level of taxation?

Attacks on banks are always pretty popular. People complain about banks, their services and profits everywhere in the world. The government’s demands may be election-motivated, but some of the demands are rational. Banks aren’t innocent. But how do we differentiate between the sensible demands and those driven by populism?

Outside of a monopoly environment or a disaster situation, like floods and earthquakes, price regulation is nonsense. We have a competitive banking market, and anything that smells of price regulation is, from the point of view of mainstream economics, unacceptable.

But neither do we live in a culture where prices are the result of bargaining. In our European context, prices must be transparently set up before the contract is signed or goods transferred. This is part of our law and entrepreneurial culture. We want to know the total cost of what we are buying.

If banks deliberately obscure price information from the client, they shouldn’t be surprised that the government is ready to regulate, with the intention to do so “by force” if necessary. Taking advantage of the uninformed or under-informed isn’t part of the fabric of our civilization, and it shouldn’t be tolerated.

But there’s transparency, and then there’s transparency. It’s nonsense to force banks to send notice of the slightest change to the client. If a client wants to know, banks should readily provide him with all the information about price changes. But it’s too costly to force banks to notify clients of every change, and to do it for free.

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