Leading article: Sluggish economic growth is no excuse for delay on reforms

Vast, universal banking operations are not the only route to economic dynamism

Share
Related Topics

Critics claim it is playing politics to press on with banking reform in the face of a stalling economic recovery. But it is no less of a political game to delay. And it would also be a vital opportunity missed.

Although cynics warned of a whitewash when a former central banker, Sir John Vickers, was tasked with crafting reforms for Britain's dysfunctional banking sector, the draft recommendations produced in April were anything but.

After a financial crisis that saw the British taxpayer stump up £850bn-plus to shore up banks deemed "too big to fail", this newspaper instinctively supports splitting banks' "casino" investment operations from the retail savings that were used to fund their excesses. The ring-fencing scheme proposed by Sir John – under which institutions set up internal "firewalls" so investment divisions can safely fail – is the most practical option.

But ahead of the Independent Commission on Banking's final report next month, the pressure to reconsider is rising. And there are signs that the Chancellor is buckling, and may push the deadline out to 2019.

The banking lobby has some powerful ammunition. It is true that the economy is in worse shape than when the draft reforms were published last autumn. It is also true that banks face escalating risks from the eurozone, as fears of a sovereign debt default depress share prices and raise hints of a second credit crunch. Now John Cridland has upped the ante even further. The director general of the Confederation of British Industry not only brands ring-fencing as "barking mad" in the current economic climate, but adds dark hints of "political reasons" for the Government to be seen to act, regardless of the cost to UK plc.

Such arguments must be resisted. The issue of share prices is the most obvious red herring. Markets price in new rules when they are set out, not when they come into effect. Given that Mr Osborne has already endorsed the ring-fencing as a concept, there is therefore no benefit in delaying its implementation.

The wider economic case is, superficially at least, more compelling. To breathe life into Britain's moribund recovery, businesses must be both confident enough to expand and able to afford to borrow the money to do so. There is evidence of problems with both. But it is myopic to suggest that reform, because costly, must therefore be avoided. Vast, universal banking operations are not the only route to economic dynamism, and the Government is rightly investigating alternatives, including, most interestingly, increased competition in the banking sector itself.

It was to be expected that vested interests would fight hard to maintain the status quo. Vince Cable – the Liberal Democrat Business Secretary – is toughening up his position, promising a lively intra-Coalition wrangle if the Chancellor wavers. He is right to do so. Britain's world-leading financial sector is indeed a vital part of the economy. But the banks cannot hold the Government to ransom, either by threatening to leave or by invoking the spectre of economic damage. They also cannot be maintained, free of moral hazard, at taxpayers' expense. Britain's banking sector is structurally flawed. It needs reform without delay.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Recruitment Consultant / Account Manager - Surrey / SW London

£40000 per annum + realistic targets: Ashdown Group: A thriving recruitment co...

Ashdown Group: Part-time Payroll Officer - Yorkshire - Professional Services

£25000 per annum: Ashdown Group: A successful professional services firm is lo...

Day In a Page

Read Next
Nicola Sturgeon could have considerable influence over David Cameron in a hung parliament  

General Election 2015: What if Cameron were to end up in hock to the SNP?

Steve Richards
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before