Outlook Robert Jenkins, appointed to the Bank of England's Financial Policy Committee in the summer, has insisted in recent weeks that his hard-hitting speeches reflect his own views, not necessarily those of the institution. No doubt, but Mr Jenkins is worth listening to – judging from the minutes of the latest meeting of the FPC, published yesterday, he has done a fine job of persuading colleagues of the wisdom of his arguments.
The FPC's latest thinking appears to coincide very neatly with some of the more confrontational opinions Mr Jenkins has offered over the past month. He was the first at the Bank to demand that banks cut back on bonuses and dividends rather than lending in order to improve their capital ratios. He was also the first to say some banks may even have to raise more capital. And he was the first too to criticise the banks' use of return on equity as a yardstick for setting their executives' pay.
Since all these arguments now seem to have been incorporated into the FPC house view, senior bankers might be wise to take another look at the most strident speech of all that Mr Jenkins has given. In it, he accused the banking lobby of having been deliberately dishonest in its attempts to convince regulators that strengthening capital ratios would require them to deprive businesses of credit – and thus to tip Britain further into recession.
That accusation was followed by a warning that in behaving so dishonestly, the banks were effectively sealing their own fate, "making a case for more intervention in an industry which refuses to reform".
We know the banks' arguments well enough of course, but it appears the regulators are weary of listening to them. If Mr Jenkins' views are widely shared, as they so often seem to be, the British Bankers Association, the cheerleader-in-chief for the 'don't make us stop lending' campaign, may have to change tack.
The argument also underlines the extent to which the banks and their regulators at the Bank of England and the Financial Services Authority are now so divided. In the immediate aftermath of the financial crisis of three years ago, there was widespread consensus about the need for reform and even thenature of what was required. That is no longer the case.
Where do we go from here? Well, one side or the other has to back down. The banks must decide whether to toe the line and improve their ratios by reining in distributions without reducing lending – all of which is easy enough to measure. If they do not, the Bank of England has to decide whether to take action against them. Now let's see who blinks first.