David Prosser: Britain's banks are playing a high-stakes game of chicken with their regulator

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.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Lena Headey as Cersei Lannister in Game of Thrones
film
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015