Ethical Funding: The Death of 'Fat' Banking

It's just cost Yell Group £80 million in fees to secure £660 million in funding. Apparently this is because there are over 300 lenders involved. So I guess you could say it cost about £284,000 per lender.

At the other end of the spectrum, over at Zopa, borrowers pay £118.50 to borrow directly from hundreds of people at the same time, with no bank in the middle.

Somewhere in there is the real cost of enabling people and businesses to obtain funding. And the longer the banks continue to insist on such enormous rewards for their role, the harder others will try to remove them from the process, or otherwise curb their perceived excesses.

Since steering Zopa through the maze of financial regulation, I've become aware of many others who are also implementing alternative funding strategies that take banks out of the process. It's complex and time-consuming, but less so now that starving advisers are starkly aware of their own need to provide a faster, more cost-effective service in this area. Recent figures reveal that Ireland and Luxembourg are reaping the rewards.

The fact that I can't really discuss these alternative funding sources without interfering with their marketing obligations underscores why the banks are able to charge such high fees.

Intensive regulation - ironically designed to protect the financial system and taxpayers from the kind of events we've seen occur regardless - has funneled the world's investment funds and opportunities into a cloistered environment in which only a privileged few are trusted to connect them. Enormous rewards for those few are simply a bi-product of that regulatory framework. It is unsurprising that those rewards should remain high as the flow of investment capital runs dry in the face of intensifying demand from cash-strapped banks and corporations.

So there is further irony in the European Commission's plans to regulate the alternative investment markets. This should simply concentrate the number of intermediaries who can arrange funding, allowing them to increase their fees, yet fail to deliver any incremental protection from the risk of financial failure.

The attack on 'excessive' fees and bonuses actually challenges the notion that matching investment capital and investment opportunities should be reserved for an anointed few. To remove the fat, you need to turn the situation on its head. The authorities should be fostering (not necessarily regulating) the growth of simplified, transparent marketplaces that are substantially open to all, linking investors and issuers of stocks and bonds in a direct sense, albeit still facilitated by skilled, lean operators.

Such a process of simplification, with increased openness and transparency, is entirely consistent with the rise of directly accessible consumer marketplaces for consumer goods, travel, betting, entertainment, personal finance and trade finance during the past decade. In those marketplaces, the role of the facilitator has been to enable consumers to seize control of their own experience and keep much more of the value that was previously retained by 'traditional' product providers.

In this sense, the "democratisation" of the financial markets may be seen as very much a logical step, rather than anything terribly radical. It will be important to get the rules right - just as that has been critical to the success of many other consumer platforms already out there. But openness, fairness, transparency, and both governments' and taxpayers' determination to get out of this mess, ought to be reliable guides.