James Moore: Osborne must respect get-tough plans for banks or be seen as a poodle

It is rather a sign of the times that the deal is nothing to do with the core business, the stock exchange itself

The Wall Street Crash of the 1930s led to the United States forcing a split between retail and investment banking under the Glass-Steagall act. It held for more than 60 years until the banks tore down the walls, partly as a result of the flurry of deals in the 1990s that made them too big to fail.

Under the influence of powerful lobbyists, with fat chequebooks, politicians passed the deals and allowed the holes that the banks dug in the Glass-Steagall dam to burst it. They even succeeded in persuading President Bill Clinton that it was a jolly good thing, and his own idea.

The Parliamentary Commission on Banking Standards is understandably concerned that the approach adopted by Britain (and Europe for that matter) to preventing a repeat of the most recent banking crisis could be endangered by a similar process in the future.

Its solution is to hand regulators a nuclear deterrent to prevent holes from being dug in the first place. That deterrent comes in the form of reserve powers to break up banks that try to break through a ring fence designed to protect retail depositors and small businesses.

The problem with a nuclear deterrent is that it can't be used. You can imagine the impact of the Bank of England pushing the button: howls of outrage, and claims that such a move would be bad for business and bad for Britain.

As a result the commission has carefully constructed a multi-step process, under the supervision of the Treasury Select Committee, to put miscreant banks "on watch" before the ultimate sanction is applied.

It's actually the sort of thing that might have served as a better wake-up call to Barclays than a few cross letters from Lord Turner at the time when the bank's relations with the Financial Services Authority reached their nadir.

This is not what the Chancellor, George Osborne, hoped he would get when he created the commission. He expected it to confine itself to professional standards and recommend some sort of professional body, perhaps a British Medical Association for bankers. As if a rap on the knuckles from a woolly watchdog would somehow prevent people like Kweku Adoboli from rolling the dice in pursuit of a million-dollar bonus. Or superiors of future Adobolis from turning a blind eye in pursuit of bonuses of their own.

Mr Osborne stocked the commission with people like Lord Lawson, the former chancellor, Lord Turnbull, the former cabinet secretary, and Justin Welby, a former oil executive before rejecting mammon in favour of a career in the church that has led to him becoming Archbishop of Canterbury. And he put Andrew Tyrie, the chairman of the Treasury Select Committee, in charge. If he's surprised that this lot has gone off and done something he didn't expect he's really rather naive.

The proposals are actually sensible, and likely to be supported by people such as Sir Mervyn King, the governor of the Bank of England. But the real problem for Mr Osborne is that the people who have made them have a great deal of credibility.

If he ignores their recommendations, or tries to "game" them himself by watering them down, he runs the risk of being seen as the bankers' poodle. That's not a happy place to be.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent
Markus Persson: If being that rich is so bad, why not just give it all away?

That's a bit rich

The billionaire inventor of computer game Minecraft says he is bored, lonely and isolated by his vast wealth. If it’s that bad, says Simon Kelner, why not just give it all away?
Euro 2016: Chris Coleman on course to end half a century of hurt for Wales

Coleman on course to end half a century of hurt for Wales

Wales last qualified for major tournament in 1958 but after several near misses the current crop can book place at Euro 2016 and end all the indifference
Rugby World Cup 2015: The tournament's forgotten XV

Forgotten XV of the rugby World Cup

Now the squads are out, Chris Hewett picks a side of stars who missed the cut
A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago