James Moore: Sorry Sir John, but the banks could run rings around your ring fence

Outlook: How do you decide if a bank has been trying to ‘game’ the system? Who makes the ruling

Chip, chip, chip. The Parliamentary Commission into Banking Standards has spent much time debating the effectiveness of Sir John Vickers' proposals to force Britain's banks to ring-fence retail operations with the aim of securing the deposits of ordinary Britons if the roof falls in again.

The main concern about this approach? Any ring fence is permeable. This was perhaps best expressed by Paul Volcker, the former US Federal Reserve chief who drafted American financial reforms which go in an altogether different direction. They simply ban banks from betting with their own capital in the financial casino.

Mr Volcker's concern is that big banks, with their lawyers, and their lobbyists, will find a way around the ring fence until it is, to all intents and purposes, useless.

Chip, chip, chip.

That is, as Mr Volcker has pointed out, if a ring fence can be effective in the first place. Sure, the ring-fenced retail bank is supposed to have a separate board, but if that board is subsidiary to the group board of the parent company, is there any point?

Sir John, pictured, has pointed out that ring fences have worked in the past. Wessex Water was, for example, once a ring-fenced subsidiary of Enron. It had its own board and did its work about as well as any water company (read mediocre) even as its parent was engulfed in scandal.

The trouble with the comparison is that a utility is a very different proposition to a bank. Would a ring-fenced retail bank owned by, say, Lehman Brothers, have been protected when the roof fell in there? Interesting question, isn't it?

Chip, chip, chip.

The commission is clearly alive to the issue and there is one option for protecting the ring fence that keeps being raised. That is to include in the legislation which sets it up a provision allowing someone to break up banks which try to "game" or break the ring-fence.

It is an idea that sounds attractive, but which has significant flaws. How do you decide if a bank has been trying to "game" the system? Who makes the ruling? Is the cost of the judicial review that will inevitably follow worth it?

Of course, supporters of such a move say that banks which play the game have nothing to fear. But how much do they have to fear anyway? The lobbyists have been hard at work on the Vickers proposals and have already made some of them easier.

Leverage levels are likely to be higher than Sir John's Independent Commission on Banking suggested. Smaller banks may be exempted, and some which aren't all that small. Banks will even be able to sell simple derivatives within the ring fence, and that one is hilarious. How does one define a "simple" derivative in the first place? And weren't the derivatives that were widely mis-sold as interest-rate hedges to small businesses pretty simple as derivatives go?

Then there's the biggest problem with the whole thing, spotted by the Liberal Democrat John Thurso: the legislation to set up the ring fence is basically an enabling act. It hands Treasury mandarins the power to draft "secondary legislation" to formulate how it all works in practice. Such legislation usually gets passed on the nod before MPs head off for a subsidised pint.

And it will be drafted by the same sort of people who came up with the "tripartite" system of banking regulation under the last Labour government which left Britain wearing the emperor's new clothes when the financial crisis struck.

Chip, chip, chip.

Sir John says he's convinced a ring fence can work in practice. For the sake of my savings I wish I could feel so optimistic.

Naughty vicar does this movement no credit

The News of World may no longer be with us, but that doesn't mean the newspaper's stock in trade before it learned how to hack mobile phones has gone away.

I'm talking about naughty vicars, and the Reverend Carmel Jones yesterday proved the point.

Not that the 'Screws would have been much interested in the good, sorry, the bad pastor, because there was nothing salacious about his sins. His misdeeds were more larcenous than libidinous.

The Reverend Jones was doing God's work when he founded the Pentecostal Credit Union, which had 1,600 members in London.

Credit unions are, in general, a thoroughly good thing. They encourage members to save and offer loans to bail them out when things get tight.

Unfortunately Reverend Jones cooked up a scheme to use the credit union's funds to provide loans for his church organisation to buy and repair properties.

The Financial Services Authority told the Reverend to stop his little game back in 2004 after a fairly frothy exchange of correspondence.

At first he did, only to start again three years later in 2007, when loans were apparently made to credit union members, only to end up with – you've guessed it – the church organisation.

It gets worse: relations between union and organisation have broken down and £670,000 has been left outstanding on loans totalling £1.2m.

The FSA said it would have fined the Reverend, who's been reprimanded and banned, but he's as skint as his credit union, so there's not much point.

It's a sorry little tale, really. The Reverend did not make any personal gain from the affair. But he was a man of power and influence among his flock, and with the credit union, which he appears to have treated as a cash cow for church projects.

There's a nasty sting in the tail of this tale, too. Credit unions ought to be encouraged and promoted as an alternative to predatory payday lenders like Wonga.com.

Unfortunately, and the Rev should hang his head in shame, his actions are going to make the job of the movement's champions that much harder.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Lois Pryce... Life Without a Postcode. Lois lives on a boat with her husband.. Registering to vote in the election has prooved to be very difficult without a fixed residential post code. (David Sandison)
newsHow living on a houseboat meant I didn't officially 'exist'
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Steven Fletcher scores the second goal for Scotland
cricketBut they have to bounce back to beat Gibraltar in Euro 2016 qualifier
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing