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

Recruitment Genius: New Business Sales Consultant - Mobile - OTE £35,000

£14000 - £35000 per annum: Recruitment Genius: This independent telecoms compa...

Recruitment Genius: New Business Sales Consultant - Unified - OTE £35,000

£14000 - £35000 per annum: Recruitment Genius: This independent telecoms compa...

Recruitment Genius: Trade Sales Consultant - Furniture

Negotiable: Recruitment Genius: This is an exciting opportunity to join a besp...

Recruitment Genius: Direct Sales Consultants - OTE £65,000 - £100,000

£65000 - £100000 per annum: Recruitment Genius: This national direct sales com...

Day In a Page

Read Next
 

My cancer diagnosis cost me my home

Deanne Wilson
Dov Charney, the founder and former CEO of American Apparel  

American Apparel has finally fired Dov Charney, but there's no reason to celebrate just yet

Alice Nutting
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum