Leading article: In bank reform, 'in full' must mean exactly that

 

Share
Related Topics

There was as much politics as economics and finance about the Business Secretary's pre-announcement yesterday that the Government is to implement the recommendations of the Vickers commission on banking in their entirety. In the aftermath of the Prime Minister's refusal to sign up to European Union reforms of the eurozone, Liberal Democrat ministers, from Nick Clegg downwards, have had an uphill struggle to claim they still have a voice in the Coalition. Add the details, revealed in this newspaper last week, of the banks' intensive lobbying of the Treasury in the run-up to today's official verdict, and some of the thinking behind what the Business Secretary said yesterday becomes clear.

This is not a reason to doubt the accuracy of what Vince Cable said, or his good faith in saying it. But it is a reason to retain a healthy degree of scepticism and to keep firm tabs on what progress is, or is not, subsequently made. The banks have never concealed their misgivings about the Vickers proposals – which veer from gentle questioning to outright hostility – and they are unlikely to abandon the fight just like that, even in the light of the Government's full acceptance, if that is what it turns out to be.

When the Independent Banking Commission, chaired by Sir John Vickers, published its report in September, it was described as presaging the most radical reforms of the British financial sector for decades, perhaps ever. The central provision was for a firewall to be erected around high street banks to prevent them being bankrupted by the "casino" operations of the investment banks. The two types of bank could remain in common ownership – a concession that, in our view, need not have been made – but the investment banks would not be permitted to "gamble" with ordinary savers' money, which is what left many teetering on the brink of insolvency in 2008.

The banks have complained bitterly that separating the two types of operation will cost them huge amounts of money – something that the Vickers report conceded when it estimated the bill at around £7bn. Except that this sum, while indeed huge in lay people's terms, actually amounts to a tiny fraction of the banks' turnover. There is not the slightest risk that it could imperil their bottom line – and, if that is what they argue, they should be tartly reminded that it could, and perhaps should, have been worse.

Among other recommendations was a requirement that the banks significantly increase their capital. Again, this was not calculated to be greeted with great enthusiasm – by the banks. Given the depth of the 2008 crisis and the breadth of its repercussions, however, it seemed sensible, even modest, to the public at large.

The need to increase capitalisation is one explanation given by the banks for their reluctance to lend more than they currently are. And it is true that criticism of low lending, both from ministers and from small business, contains an element of ambiguity.

On the one hand, easy credit helped fuel the financial crisis; on the other, tight credit is now blamed for hampering recovery. That the banks overall need much higher levels of capitalisation than they had a decade ago, however, is beyond doubt; there should be no backsliding on the stipulations set out by the IBC.

If, in its response today, the Government indeed confirms that it will implement the Vickers report to the letter, as we hope it will, the banks are likely to start howling all over again. They should, though, be grateful for the – in our view, unnecessarily – generous seven-year transition and imagine what might have been if a government less sympathetic to the banking and business sector had been in power. Speaking of which, the Prime Minister should appoint Sir John Vickers to an oversight role, to ensure that what is supposed to happen, really does.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Sauce Recruitment: Retail Planning Manager - Home Entertainment UK

salary equal to £40K pro-rata: Sauce Recruitment: Are you available to start a...

Ashdown Group: Front-End Developer - London - up to £40,000

£35000 - £40000 per annum: Ashdown Group: Creative Front-End Developer - Claph...

Recruitment Genius: Product Quality Assurance Technologist - Hardline & Electric

£18000 - £24000 per annum: Recruitment Genius: The role in this successful eco...

Ashdown Group: QA Tester - London - £30,000

£28000 - £30000 per annum: Ashdown Group: QA Tester - London - £30,000 QA Tes...

Day In a Page

Read Next
 

CPAC 2015: What I learnt from the US — and what the US could learn from Ukip

Nigel Farage
 

If I were Prime Minister: I would create a government that actually reflects its people

Kaliya Franklin
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower