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

Senior QA Engineer - Agile, SCRUM

£35000 - £50000 per annum + benefits: Ashdown Group: Senior QA Engineer (Agil...

Marketing Executive - West Midlands - £28,000

£26000 - £28000 per annum: Ashdown Group: Digital Marketing Executive (SEO, PP...

Retail Business Analyst

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Our retail client ...

Senior C++ Developer

£400 - £450 Per Annum possibly more for the right candidate: Clearwater People...

Day In a Page

Read Next
 

i Editor's Letter: We are winning the fight against extreme poverty and hunger. It's time to up the ante

Oliver Duff Oliver Duff
David Cameron addresses No campagn supporters in Aberdeen  

Scottish independence: Cameron faces a choice between destroying his country or his party

Matthew Norman
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
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week