It's not so much a case of shutting the stable door after the horse has bolted, as telling the stable-boy to close the door he had firmly shut some time ago. This is the more appropriate metaphor to describe the proposals announced yesterday by the Financial Services Authority to make mortgage lenders behave prudently.
The FSA is calling a halt to mortgages in which the lender makes no independent checks on the borrowers' ability to repay – so-called self-certifying mortgages, or "liar loans", as they became known. Yet any self-employed person could have told the FSA that the mortgage firms had long ago tightened up their lending procedures – and in a way which substantially contributes to the torpid state of the housing market.
This, I know from experience, having recently been turned down for a mortgage by two lenders before satisfying a third only after the most exhaustive checks on my earnings – even though the loan amounted to no more than 20 per cent of the value of the property concerned. For those self-employed people seeking a mortgage much closer to the full value of the home they want to buy, the best advice now is: forget it.
If the FSA's proposals ensure that this state of affairs is permanent, rather than a function of the current state of high anxiety in the credit market, it doesn't take a qualified psychologist to work out that the result will be an overall increase in the misery of the public: more people unable to move to areas of greater economic activity, and more cases of housing chains collapsing in a shower of recriminations. For the truth is that prudent lending is something everyone demands in principle but resents when they become the victim of it in practice.
This is why politicians did everything in their power to underwrite the boom in the housing market, most notably in the US, where the authorities told the banks that they would be guilty of unacceptable discrimination if they regarded "lack of credit history as a negative factor" in obtaining a mortgage. In other words, the dangerous "pro-cyclical" conduct of the financial sector – over-lending in boom times and under-lending in a recession– is positively encouraged by politicians.
This might also appear to be the behaviour of George Osborne, who yesterday indicated that the Government proposed to accept in full the recommendations of the Vickers Commission on Banking, which demands that British banks have much higher capital provisions against possible defaults – up to 20 per cent of their balance sheet – than those required elsewhere in the world. This is accompanied by the insistence that British banks ring-fence their high-street networks from the so-called "casino" or trading operations. If the intention is to make our banks the least vulnerable to collapse, and to rule out any future need for British taxpayers to rescue them from the consequences of their improvidence, then the Vickers proposals are entirely commendable.
Those who have the greatest dislike of bankers as a class complain bitterly that the Chancellor – while purporting to welcome the Commission's proposals – is not legislating to this effect immediately and has declared that the banks will have until 2019 to conform fully with Vickers's vision.
To the extent that such criticism has come from those on the left who regard the current management of the economy as disastrously deflationary, this is odd. After all, if the Government were to insist on immediate compliance with the Commission's demands for a much greater buttress of capital against possible future delinquency in the banks' loan books, the consequence would be a sharp cut in lending and, if the banks could get away with it, an equally dramatic increase in the margin between what they pay to lenders and charge to borrowers. It would also act as a brake on dividend payments to shareholders, otherwise known as pension funds.
In other words, speedy implementation of Vickers's recommendations, while satisfying to those who enjoy seeing banks pushed around and told how to behave, would be dramatically deflationary at a time when the Government (rightly in my view) is already tightening fiscal policy.
This point is well understood by the members of the Vickers Commission, a notably intelligent body of men (and woman). That is why, when they produced their report in September, they indicated that the banks would have no fewer than eight years in which to implement the proposals in full. Their idea, or hope, was that towards the end of that period the economy would have returned to growth and lower levels of unemployment, and that it would therefore be in the right shape to absorb what would amount to a tightening of lending and a build-up of capital on the part of the banks.
Little of this, I suspect, is foremost in the minds of the public when they think of the need for bankers to be regulated more strictly: indeed, most people regard incontinent lending as a wonderful thing, and consider banks that refuse to lend to either them or their business as beyond the pale. This, in part, is why such a populist publication as the Daily Mail has been running a campaign entitled "Make the Banks Lend" – rather than increase their capital adequacy, presumably.
No, what most people understand by "bankers' excesses" is the amount such people are paid. Yet, according to research published last week by the University of Bath and Bristol, "there is no evidence to support the argument that inappropriate incentive structures led banking executives to take excessive risks for short-term profits". Said Professor Ian Tonks, the lead researcher: "We are not trying to defend bankers' pay; our argument is simply that any poor decisions by bankers that led to the financial crisis were not made because of their incentive payment structures." Another interpretation would be to say that bankers were paid too much, quite independently of their firms' overall profitability.
This is an argument in favour of shareholders demanding more by way of dividends for themselves, in place of bigger bonuses for the bankers who are in theory working for them. As the Vickers proposals will certainly lead to a reduction in the profitability of the big banks, it is more than ever desirable for the pension fund managers to defend our dividends at the expense of the bankers' bonus pool. That, however, is not a job for government, unless it wishes to return to that relic of the 1970s, a statutory incomes policy – something that caused much more misery even than the existence of overpaid bankers.