Mark Leftly: Weak coalition ducks decision on bank reform
Sunday 04 September 2011
What neither advocates of banking reforms nor those that oppose them wanted, or needed, was for the detail of the next regulatory framework to be uncertain.
Yet the coalition will achieve exactly that once it looks at, and almost certainly accepts, the reforms proposed by the Independent Commission on Banking (ICB) in eight days' time.
First, though, a recap of the likely reforms and the reasons for the banks' opposition: The headline-grabber is the idea of ringfencing retail operations from investment banking at the so-called "universal" banks, so that high-street deposits are not raided to pay for any failures in banks' more speculative activities. ICB chairman Sir John Vickers is also minded to increase capital buffers to ensure any financial bets can be covered.
With more than a touch of hyperbole, banks have described the reforms as "draconian", arguing that the major UK casualties – Northern Rock and Bradford & Bingley – were retail banks. Ringfencing would not have helped here. Others argue that spreading risk through different types of banking makes the institutions safer.
What's more, there is misunderstanding of what investment banking comprises: There are traders who develop, buy and sell bundles of devilishly complicated commercial property loan products who may be to blame for the crisis; then there are M&A bankers who might not warrant their exorbitant fees, but who are no more culpable than the rest of us.
Finally, having to pour more money on the balance sheet, the banks claim, means they will find it difficult to lend to businesses and homeowners – at least at reasonable rates.
It has been argued that these reforms could lead to the big banks moving away from the UK – not necessarily an unpopular notion – and wipe up to £10bn off the taxpayer's stakes in Royal Bank of Scotland and Lloyds Banking Group.
On the flipside, these reforms could instil the financial discipline that the banks so obviously failed to implement prior to the summer of 2007.
The coalition might back reforms but a braver government will have to carry them through.
Bank shares soared when it emerged last week that reform was unlikely to be implemented until after the next general election, in 2015. If this was merely delaying the inevitable, then shareholders could at least make judgements based on what was happening and when. However, as the coalition introduced five-year, fixed-term parliaments, this means that banking reform will become an election issue in May 2015.
This isn't like the first Tony Blair government, when a second term of familiar faces was all but guaranteed.
If Labour fights and wins an election by veering to the left, reforms could be deeper; a Conservative majority with a leader unlikely to seek 15 years in office might even rein back from a populist reforming stance and follow his free-market instincts; and the compromises needed to form a coalition have not proved to be predictable.
Whatever the reforms, they should be introduced quickly and allowed to succeed or fail on their own merits. Instead, the coalition will have dragged out the financial crisis for at least another four years.
Insurers and homeowners beware: the US hurricane season ain't over yet
Ben Price, who holds the rather exciting title of executive director for disaster co-ordination at Cunningham Lindsey loss adjustors, tells me that hurricanes "actively feel out land and try to avoid it".
Apparently, this is a matter of topography – not to mention a matter of some dispute among experts in this field – which is one explanation for why Hurricane Irene weaved its way through most of the Bahamas, striking only low-lying land.
Generally, the hurricane season has not been as awful as the insurance and reinsurance industries feared. Last year, the US coastline escaped largely untouched, despite 2010 being the third most active hurricane season on record, and few believed that luck would hold.
Projections that hurricanes would reach the coastline proved correct, with Irene causing massive floods and killing nearly 50 people. Tragic though the loss of life may have been, the US could still be described as fortunate: Irene weakened very quickly before reaching land and only initially in North Carolina was it severe enough to still be classified as a hurricane.
By the time it re-emerged in New Jersey, New York and Vermont, Irene was downgraded to a tropical storm – enough to leave four million people without electricity, but not kill hundreds or even thousands.
Although insurers face bills amounting to several billion dollars, many policyholders could still find themselves drastically out of pocket. Matthew Nielsen of RMS, the hurricane modelling company, points out that the US government's National Flood Insurance Programme pays a maximum of $250,000 for residential damage caused by floods. Few pay the excess for extra insurance; few thought their properties would ever suffer more than this.
These policyholders, those who came out unscathed, and even big insurance companies cannot afford to believe the worst is over. The peak of the hurricane season is 10 September and storms are creeping westward across the Atlantic.
In The Pink: Peppa Pig's family goes to market
The past three years have been a bad time to be a much-loved, British, children's character.
Postman Pat owner Entertainment Rights was rescued from administration in 2009; Pingu's parent, Hit Entertainment, is up for sale after restructuring its debt burden last year; and now Noddy's Chorion faces a break-up after breaching its loan terms.
Yet one little piggy is not only successful in her British homeland, but is also bringing home the bacon stateside. She is Peppa Pig, star of the eponymous TV show that most pre-school parents think is the best kids' programme around.
With her family, including Daddy Pig – who in one episode declares a donkey talking French to be "speaking rubbish" – Peppa has more than 500,000 two- to five-year-old viewers and a toy deal after debuting in the US just seven months ago. She is a major factor behind Entertainment One's soaring share price, which has more than doubled in the past 12 months.
Marketed well, Chorion's characters could do the same for its new owners.
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Do you realise just how foolish the UK looks?
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