Sean O'Grady: Commission recommends separation of retail and investment banking

Related Topics

The central proposal of the Vickers Commission, backed by the chancellor, is to separate out the big bank's retail banking operations - the bits that run boring old savings, mortgage and cheque accounts - from their investment banking activities, or so-called "casino banking".

The crucial thing in this is that the banks will be allowed to stay legally whole, just as they wish, and not forcibly broken up in the way that, one suspects, the Business Secretary Vince Cable and the Governor of the Bank of England, Sir Mervyn King, might still quietly wish.

Banks will instead be asked to hold more reserves in different places in case things go wrong; not allowed to "gamble with your money"; and the taxpayer guarantees will be limited to the retail stuff. Thus we will end "too big to fail".

Will we? Like many official bodies over the years the Vickers Commission has interested its terms of evidence as a writ to allow the authorities to have their cake and eat it; in this case to keep our vibrant wealth creating financial services, but avoid the blow up that has cost us so dear. Their solution sounds plausible, but Sir Mervyn for one gave a notably uneffusive welcome to "ring fencing", observing merely that a "change in the structure of banking" is required and that "I await with interest" their final recommendations.

He remains, I suspect, to be wholly convinced that a complete legal separation of banks' high street and other functions might not be safer all round, and with little cost or inconvenience to customers. After all, for seven decades after the Wall Street Crash the United States' Glass-Steagall Act, named after the Congressmen made it illegal for investment banks to own retail banks and vice versa. It was copied around the world and it served us well until its abolition in the 1990s: There were few major banking crises in the US or Europe between 1945 and 2007.

Maybe the financial tsunami we suffered in 2008 was to great for any regulatory seawall, but such rules might have prevented some of the damage. If so, they would have been highly cost effective, given that the British taxpayer has had to provide total support of £1trillion (£1,000,000,000,000) to the financial sector.

The lesson of the last few years is that the ingenuity of bankers and their determination to abide by the letter but not the spirit of the law knows no bounds. Indeed, such mischief is regarded as legitimate "regulatory arbitrage".

The Vickers rules would be no different. In the City of London, as in Manhattan and elsewhere they employ - literally - rocket scientists to evade regulation - a cat and mouse game the authorities can't win. We should let the investment banks float off on a speculative island, pay themselves mad bonuses, take mad risks, and make and lose fortunes, just like the casinos of Monaco do. But they should have as little to do with the real economy as possible.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Cover Supervisor

£75 - £90 per day + negotiable: Randstad Education Group: Are you a cover supe...

Marketing Manager - Leicestershire - £35,000

£30000 - £35000 per annum: Ashdown Group: Marketing Manager (CIM, B2B, MS Offi...

Marketing Executive (B2B and B2C) - Rugby, Warwickshire

£22000 - £25000 per annum: Ashdown Group: A highly successful organisation wit...

SEN Coordinator + Teacher (SENCO)

£1 per day: Randstad Education Leeds: Job Purpose To work closely with the he...

Day In a Page

Read Next
Piper Ryan Randall leads a pro-Scottish independence rally in the suburbs of Edinburgh  

i Editor's Letter: Britain survives, but change is afoot

Oliver Duff Oliver Duff
Some believe that David Cameron is to blame for allowing Alex Salmond a referendum  

Scottish referendum: So how about the English now being given a chance to split from England?

Mark Steel
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam