Knickers to Vickers
The Vickers report on banking reform is long, but two paragraphs sum up where it goes wrong.
The first is para. 5.93, which justifies the 2019 implementation timetable thus:
The Commission has taken into account the current equity capitalisation of the UK banks and the levels of potentially loss-absorbing capacity that they already hold in forming its recommendations and setting the timetable for implementation set out below. This should provide sufficient time for banks to build up extra capacity without having rapidly to shrink assets. If implemented on this timetable, and given the degree to which transitional and arbitrage risks have been factored into the recommendations, the risks to the pace of recovery around the reform package should be low.
In other words, the Commission wants to give banks the time in which to balance their willingness to lend and the size of their deposit base.
Now, I’m no banker, but balancing lending with deposits seems to my untutored eye to be the essence of being a bank.
So if the Commission believes that banks cannot undertake their core function for another seven years, without the risk of further meltdown, shouldn’t they at least look at some kind of alternative?
Which brings me to paragraph 6 of the Executive Summary:
In any case, it should not be the role of the state to run banks. In a market economy that is for the private sector disciplined by market forces within a robust regulatory framework.
So THE key alternative for the fostering of ‘real’ economic growth – promoted by plenty of perfectly sensible economists AND Peter Mandelson - is ruled out on page 1, with no justification beyond “it’s not the role of the state”.
No wonder the report leaves a bitter taste.
Not an ideal report, but a serious improvement on the status quo, form where I’m standing.
Martin Wolf made a good point about threats of banks leaving the country. To leave, Investment banks who threaten to leave because of tougher regulation would need to find a large retail bank to attach to and a foreign government to subsides them. Basically, neither of those things is available anywhere. So talk of VIckers sparking an exodus is sily.
Not a bad report except, as has been said, it won’t get implemented that way.
You’re right that the exodus thing is silly, and MW does well to stand up on that but he wins the battle and loses the war. Without the exodus cover, the report goes for the ‘stable economy’ excuse, expecting us to believe that thousands of banking experts have forgotten how to read company business plans and decide what are good bets for loans in the context of the current economic position and consquents sales & growth assumptions.
Nah, sorry. We’ve all been had by a nicely worded 358 pages.
If it’s the UK state per se, I’m actually in agreement with the first sentence. All financial services should be run by an ECB monopoly (throughout Europe).