Banks, but no banks

I quite like the idea of giving everyone shares in Lloyds and RBS, because there is a nice neatness (almost a sense of closure) to the concept of us getting something back from the banks we saved. But at the same time I think it’s an unworkable stinker – quite apart from the issue of whether it wouldn’t be better for the government to sell the shares normally and use the proceeds to cut public borrowing.

Mr Clegg said that it was “psychologically immensely important” for people to be given a stake in the banks … to turn RBS and Lloyds Banking Group into “people’s banks”. … “The idea is that people could buy or sell shares over time.” … Mr Clegg said the proposal would create an army of private shareholders that could hold some of the big banks to account, replacing institutional investors who had done too little to curb boardroom excess.

I see his point. But I don’t think it’ll work. He’s reckoning that people will think:

Ooh, shares in a couple of banks that almost went catastrophically bust! That’ll definitely be a good investment, I’ll hang onto those for the long term and certainly not sell them immediately.
And I’m sure everyone else won’t be selling them immediately either, because that would (a) depress the price of the shares, limiting the benefit that people would get and hitting public confidence in the whole exercise, and (b) quickly concentrate ownership of the banks back in the hands of large institutions.
What’s more, now that I own 0.0000018% of RBS and 0.0000009% of Lloyds, I can use my spare time to become an active shareholder and contribute to how these banks are run. It’ll be like the Big Society meets the minutiae of financial corporate governance – I can’t wait!

I suppose it’s possible, but I wouldn’t bet on it.