Outlook: Danger signs as banking enters the late cycle

WHEN a chain of downmarket womenswear shops can go for pounds 350m and a London socialite/restaurateur can net pounds 5m simply by catering for ladies who lunch, then we have most certainly reached what the Bank of England likes to call the late stage of the economic cycle. This is the point when the froth rises to the top and any deal seems possible. In the late 1980s the moment was encapsulated by the Saatchis' bid for the Midland. A decade on we are waiting for the late 1990s equivalent.

There are two prerequisites for this kind of late cycle activity. One is a belief that the good times will last forever. The other is a banking system awash with surplus capital. Put the two together and what normally results is some very poor lending and some even more spectacularly bad debts a couple of years down the line.

This time around, as yesterday's valedictory Banking Act report suggests, there is little evidence of the kind of reckless lending to property ventures that came home to roost in the 1990-1992 recession.

Instead, the banks seem to be gearing up to use their surplus capital to take one another out or indeed any other financial services provider that shows the slightest interest in a spot of consolidation. Thus we have had Merrill Lynch-MAM, UBS-SBC, Pru-ScotAm and what will probably turn into a wave of bancassurance mergers starting with Halifax-Clerical Medical and the daddy of them all, Citicorp-Travellers.

Michael Foot, who formally moves over from the Bank to the new Financial Services Authority in 10 days time taking his regulatory responsibilities with him, reckons there will be a lot more of this sort of activity.

With NatWest talking to the Pru and Abbey National and Barclays courting NatWest or is it Standard Chartered, who is to say he is wrong? Yesterday's rumour had ABN Amro and Bear Sterns one step away from the altar.

With financial services consolidating like this it makes sense to have a regulatory structure which mirrors the shape of the industry it is policing, or so the argument goes. When Mr Foot shifts over to become managing director and head of financial supervision at the FSA, he takes everything with him save for preventing systemic risks undermining the whole banking sector.

That means the Bank will still have a say should another Asian crisis put lending policies under the spotlight.

But he will be busy enough. The combination of vaulting ambition, and mega financial rewards which is driving the consolidation in financial services, increases the temptation for risk taking and thus regulatory failures. Mr Foot will have his work cut out.

PROMOTED VIDEO
News
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Sport
Rio Ferdinand returns for QPR
sportRio Ferdinand returns from his three-game suspension today
News
The Speaker of the House will takes his turn as guest editor of the Today programme
arts + ents
News
ebooksNow available in paperback
News
people

Watch the spoof Thanksgiving segment filmed for Live!
Sport
Billy Twelvetrees will start for England against Australia tomorrow with Owen Farrell dropping to the bench
rugbyEngland need a victory against Australia today
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books
Sport
Tyson Fury poses outside the Imperial War Museum in south London ahead of his fight against Dereck Chisora
boxingAll British heavyweight clash gets underway on Saturday night
News
i100 Charity collates series of videos that show acts of kindness to animals
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

Austen Lloyd: Company Secretary

Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

Citifocus Ltd: German Speaking Client Specialist

£Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

Citifocus Ltd: Performance & Risk Oversight

£Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

£90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game