I tweeted yesterday that it was good to see William Keegan and Will Hutton in the Observer saying the Vickers report has got it wrong on banking.
It was good to see Larry Elliott saying the same thing today - and his arguments are easily the best of the three for saying so.
As he argues, strength is in diversity, as real sciences recognise but economics does not.
Vickers seeks to maintain homogeneity in banking: keeping in place a few over-large banks. These will remain too large to fail. They will still fail to innovate - which is why they are hopeless suppliers to the UK's small business sector who they so obviously do not understand.
Worse, they will remain dependent upon government guarantees to underpin their risk. And as is already obvious, the so called 'ring fences' to protect the retail component of these banks will be completely permeable making them a charade that will be worse than useless. Not least because, quite rationally, if the investment banking arm of such an entity is failing there will, inevitably, be a run on the retail part whether a ring fence is in place or not.
Only by separating Britain's banks, not just by breaking up those we already have to ensure investment and retail banking can never be mixed again, but by re-mutualising Northern Rock, by ensuring RBS becomes a bank for sustainability, by creating a Post Bank that delivers basic banking services for all, and which provides loan repayment mechanisms linked to direct deductions for benefit payments to replace the Social Fund and consign doorstep lenders to history for good, plus real support for credit unions and real building societies, will we create the diversity the UK's banking sector needs to sustain ur well being into the future.
Vickers is not yet a lost opportunity.
It could be.
It is a consultation: please write and tell it what you want. And don't rely on someone else. They might not deliver for you. But you can.
Search the Independent Commission on Banking to find comment details.
(Sorry - no links - short of time - but easy to find on Guardian web site).
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The only way that Vickers works is if it is the opening round of an extended series of reforms much as Thatcher took several bites at anti-union legislationin the 1890s.
So round one is to separate retail and investment. But this should immediately be follwoed by moves to make it real. Thus all elements of the retail bank should report though a single retail board (and to be clear, all operating divissions should be formally and legally subsidiaries of a retail bank holding company within the larger structure.
Then in round two all directors of the retail board and anyone in the line of command above them should have joint and several personal liability for the debts of the bank. In other words if the retail bank has to ask for government support they are all thoroughly bankrupted. (I think this was the case before 1868 (???) but couldn’t find a reference).
This would concentrate thei minds about, for instance, allowing dubious intra-group loans to the investment bank.
Finally, I would change the ranking of creditors in an insolvency so that depositors rank ahead of even the most senior debt. This would have the effect of making that debt marginally riskier and more expensive so that investment bankers would find it less attractive to keep a retail arm as a kind of financial blood-bank.
Naturally, bankers would scream blue murder at all this but the obvious riposte is that unless they are planning to go bust again they are not at risk.
Chris Blackhurst in the ES of the 18th confirms what you say Richard, that ring fencing retail from speculative investment banking is useless. It’s not just a problem of excessive risks being taken, but the fact that the bankers don’t even understand what they’re doing.They can’t accurately price the financial ‘instruments’ they trade in, and don’t have a fallback strategy if it turns out they’ve got it all wrong.
So they’re heading, sooner or later, for another fall. And if the investment arm goes under it drags down the rest of the bank. The IBC has just caved in to lobbying from the bankers. They haven’t got a clue about representing the wider public interest.