As the stock market yesterday took a further lurch into the abyss, and Nationwide published data which on some measures show a worse housing crisis than that of the early 1990s, the Chancellor, Alistair Darling, was busy publishing his latest consultation document on financial stability and depositor protection.
In so far as it goes, this is an uncontroversial enough set of proposals which enshrines a better regime for dealing with failed banks and a more robust deposit-insurance scheme. Taken together, the measures should prevent a repeat of the run we saw at Northern Rock.
Sensibly, the Government has resisted pressure from MPs and the Bank of England to make the scheme fully pre-funded from day one – banks are in no position financially to cough up the cash right now. Yet it has left the door open to a degree of pre-funding at a later date. Obviously, it is better to be fully funded before the compensation scheme is called on as this will lessen the burden on the banking system at a time of stress.
Unfortunately, it is also the case that the British banking system is already so consolidated that it is essentially uninsurable, even up to the comparatively limited ceiling of £50,000 per deposit suggested in yesterday's document.
More than half of deposits in Britain are concentrated in the hands of just five players. If anyone of them were to go belly up, the amount of compensation payable would be so big as to bust the other four as well. All the same, the new arrangements seem in the round to strike the right balance. The problem with them is that it all looks a bit like fiddling while Rome burns.
The proposals won't become law until February next year at the earliest, and even then it will be only outline, enabling legislation. Putting flesh on the bones through secondary legislation may take a further two years. By that time, we'll either be out the other side of the banking crisis or all dead. The sound of stable doors being slammed is unmistakable.
Likewise with the review being conducted by Sir James Crosby, former boss of the mortgage lender HBOS, into how to re-open the market in mortgage-backed securities. If he's got anything worthwhile to propose, it won't be published until the pre-Budget report in the autumn.
The way things are going, the whole economy might be in recession by then. The need to address the present mortgage famine, perhaps by providing some form of Government guarantee for mortgage-backed securities, is rather more urgent.
Still, there is at least one redeeming feature in the present crisis; it is bringing back some amusing recollections of the last recession. One of my favourites is the remark attributed to Trevor Osborne, whose property development company, Speyhawk, went bust in the downturn of the early 1990s. Introducing the then chief executive of Barclays at a British Property Federation dinner, he said: "And this is Andrew Buxton, to whom we owe more that we can, er, ever repay".
This is in truth just a reworking of the old quip that when you owe the bank £500,000 it's your problem, but when you owe them £50m, it's very much theirs. The present crisis has added a further wrinkle – and when you owe them £500bn, it's the Bank of England's problem and very likely the Government's nemesis.Reuse content