Britain's banks could hardly be expected to accept extra regulation without a fight, least of all a package of reforms promising the biggest shake-up of the industry for decades. But the sheer volume of contact between top bank executives and the Treasury is striking nonetheless. The Chancellor must stand up for the taxpayer and resist the pressure.
Sir John Vickers, the chairman of the Independent Commission on Banking, certainly did not pull his punches. His report in September advised that banks' capital requirements be increased, that retail depositors be first in line in cases of insolvency, and – most significantly of all – that "casino" investment operations be separated from normal people's savings. All are entirely sensible measures.
But Sir John himself warned soon after his proposals were published that intensive bank lobbying was threatening to "emasculate" them. And worrying subsequent reports have suggested that the Government might take a selective approach, easing back on capital requirements, for example. There can be no justification for such changes, not least with the timetable for implementation now stretched out as far as 2019.
The banks do have superficially strong arguments. They claim that it could cost up to £7bn to put the new rules into practice; that raising the cost of banking will damage Britain's already-ailing economy; that, ultimately, uncompetitive regulation will force them overseas, taking their considerable tax bills with them. Perhaps. But it is far less straightforward, or desirable, to relocate than such easy threats suggest. And financial services can hardly be deemed affordable when they come at the price of bailing out the entire system.
Britain's banking industry is broken, as the £850bn-plus taxpayer-funded rescue in 2008 amply proves. Ostensibly, George Osborne grasps the point. When Sir John's proposals were published, the Chancellor welcomed them as "a job well done". But his formal response on Monday must follow up the warm words with decisive action – regardless of what the banks have been telling the Treasury since. Half-measures will not do.