Leading article: A skilful compromise that should usher in a safer era

Share

It would be hard to think of anything more important to a stable economy than that people should be confident that their money is safe after it has been deposited at a bank. Banks that hold people's savings cannot be allowed to fail.

Yet the 2008 banking crisis was a painful lesson in how over-confidence and greed can drive these banks to fail, at unbelievable cost to the taxpayers forced to rescue them. The report by the Independent Commission on Banking chaired by Sir John Vickers, published yesterday, is intended to make sure it never happens again.

There will be a firewall around the high street banks in which ordinary members of the public entrust their money, to ensure that they cannot be bankrupted by the operations of "casino" banks gambling in the world money markets, even where the two entities are part of the same company.

It has to be said that is partly fiction. Let us suppose – heaven forbid – that Barcap, the investment arm of Barclays, were to drive itself to bankruptcy with the recklessness that destroyed Lehman three years ago. The high street arm of Barclays would be protected in theory, but in practice the share price would plummet, doing immense damage to the pension funds that are among the biggest investors in banking, and possibly even driving the supposedly fire-proof retail part of the bank out of business. Ultimately, there is no complete guard against market failure.

The Vickers Report has therefore disappointed those who wanted a total separation of investment and retail banks, as there used to be before the US government was persuaded in 1999 to repeal the Glass-Steagall Act, introduced in the 1930s to prevent a repeat of the Wall Street crash.

On the other side of the argument, the bankers have complained that the report's proposals will be costly to implement, a cost they may feel they have to pass on to their customers. No surprise there. The CBI has complained that new requirements on holding capital will make it more expensive for British businesses to borrow from the bank.

The estimated cost of more than £6bn sounds massive, but it actually is only a fraction of the sums these banks handle, and whatever problems the new rules pose are eased by the concession that gives them until 2019 to put the new structures into place.

Whatever the misgivings, the proposals of the Vickers Commission are a sensible compromise. The bankers may complain, but public opinion is likely to conclude that they got off lightly, and at heart they must know that it could have been worse.

But it could also have been worse for the British economy, which is so heavily reliant – too reliant, some say – on the finance sector. Had the commission gone harder in its recommendations, there would have been a risk that the Government might throw the report out altogether, so that nothing was achieved; or that if the Government seemed minded to act on it, the banks would have moved their operations out of the UK. As it is, there will likely be no clamour to abandon London.

The key now, as the Shadow Chancellor Ed Balls stressed yesterday, is to make sure the banks use their eight-year changeover period sensibly. It would be quite wrong if they did nothing for six or seven years and then implemented changes in a rush. There is, therefore, merit in Mr Balls's suggestion that Sir John Vickers' commission should carry out an inquiry in two years into how much progress has been made.

Overall, Sir John Vickers and his team have done their job well. They have reached a sensible decision and drawn a line, however thin, under the catastrophe of 2008.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

SAP Project Manager

competitive: Progressive Recruitment: SAP PROJECT MANAGER - 3 MONTHS - BERKSHI...

SAP Project Manager

competitive: Progressive Recruitment: SAP PROJECT MANAGER - 3 MONTHS - BERKSHI...

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

Microsoft Dynamics AX Functional Consultant

£65000 - £75000 per annum + benefits: Progressive Recruitment: A rare opportun...

Day In a Page

Read Next
Children of a bygone era  

Kids these days aren't what they used to be — they're a lot better. So why the fuss?

Archie Bland
A suited man eyes up the moral calibre of a burlesque troupe  

Be they burlesque dancers or arms dealers, a bank has no business judging the morality of its clients

John Walsh
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star