“RING-FENCING RETAIL BANKING IS MORE THAN ADEQUATE –
UK BANKS NEED TO CRACK ON!”
George Osborne has experienced a very tough baptism as
Chancellor in the last 30 months – very little of it of his making. His
progress has also been hindered by a slew of small u-turns in policy going back
to the last budget. Frankly small ‘U-turns’, if properly presented,
illustrate some humility. The problem is that the Tory ‘PR’ machine has
been firing off three cylinders. So it has been a question of damage
limitation.
Yesterday Mr Osborne was at his best, in attempting to
convince the Parliamentary Committee that the recommendations made by the
Vickers ICB on ‘ring-fencing’ retail banking operations from investment banks
was the correct way forward. However the BOE’s Andy Haldane, executive director
of Financial stability is far from convinced that the ICB has gone far enough
and one suspects that Paul Tucker is at the half-way house in his views.
Much as I respect the HUGE intellect and not
inconsiderable experience Lord Nigel Lawson, Lord Andrew Turnbull and the Right
Reverend Justin Welby, Archbishop of Canterbury elect, in their respective
fields, banking supervision is hardly a subject that any of them will aspire
for an honours degree in! Lord Lawson might have 25 years ago! I think
this subject is one for the professionals. The one major criticism I have
is that we are 4.5 years on from the financial crisis and fresh radical
regulation should have been in place two years ago. Attempts to agree
regulation on a global basis was misguided. The cultural ‘criteria’ for banks
from each country or continent is totally different; so the same formula cannot
necessarily be used.
Consequently since global representatives from Central
banks, ordinary banks, lawyers and accountants started gathering in Basel years
ago, attempting to sort out the unemployment levels amongst foresters – such is
the amount of bumph that has been pushed around for Basel 11 & 111, ‘Rome,
metaphorically, has burned!’ So the US has stolen a march on Europe and
the UK with the Dodd/Frank and Volcker recommendations more or less having been
agreed and implemented, the US’S recovery path looks a measurably smoother and
clearer than on this side of the pond.
For four years those involved in investment banking
have been pilloried and castigated, thanks to the misdemeanours of a few
discredited people. Yes, the bonus issues really struck raw nerves for
many observers. However I need to remind people that apart from the
purchase of ABN-AMRO by RBS, it was poor credit rating and analysis resulting
in injudicious lending by the likes Northern Rock, Bradford & Bingley and
HBOS, which brought the financial systems in the UK to with an ace of
insolvency and bankruptcy. Also the miss-selling of PPI had nothing to do with
investment banking and the LIBOR rigging probably had more to do with the
treasury departments of the banks than their investment banking
divisions. The miss-selling of swaps to small and medium sized companies
was a corporate banking activity – not part of an investment bank’s
armoury. So when appraising ‘ring-fencing’, it is important to realise
what compartment these facilities emanate from. Like it or not – Big is
beautiful. We need big banks with large dollops of capital to orchestrate
the recovery. Splitting the banks would be very costly, with the consumer
inevitably picking up the tab.
It would be great to have the high street with an
array of “First Bank in Boot Hill!” It’s not going to happen. Virgin
Money, the Cooperative Bank and the Nationwide plus no doubt the likes of Tesco
and maybe M&S will have a role to play, but real clout they do not
have! In the future I have every reason to believe that the huge consumer
operators such as GM, Vodafone, Apple and perhaps even BMW will be major forces
in retail banking. They understand the consumer better than
most! But as matters stand, the big banks need to nursed back to
full health. Chancellor Osborne is spot on with his assessment and if this
government has aspirations to regain the confidence of the electorate hopefully
George Osborne will be the ‘Pied Piper’ and Dr Vince Cable and other dissenting
voices will be his loyal followers! If the BOE and the FSA are up to the
challenge of sensible regulation, without ‘over-kill’, then recommendation on
the table from Vickers is more than adequate.
The UK needs to crack on with this change in banking
regulation PDQ. The banks are the main artery to economic recovery – fact of
life! The Chancellor needs to announce Paul Tucker as the new Governor
and let’s crack on! We need the banks to get back on the bridle, for
London to regain some lost ground! Until regulation is bedded down or at least
the time table, banks will continue to sit on their hands. It is prudent for them
to do so until they know the rules of the game.
I still maintain that the level of PR from the CEOs of
the top banks is way short of the level required. They should call
monthly meetings for clients, analysts and the press and give an account of the
progress and difficulties they are encountering. It would help them
rebuild their relationship with their clients, who currently miss-trust
them!
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