Monday, September 5, 2011

Vickers: 8 reasons why the banks' arguments are wrong

It’s only a week to go before Sir John Vickers publishes the ICB’s final report on bank reform and the debate is heating up spectacularly. The banking lobby has gone into spin overdrive and is pumping out arguments against change in various newspapers, on the BBA blog and behind closed doors to government officials, including David Cameron it seems.  At the same time, a few brave City figures like David Pitt-Wilson are putting the other side of the argument.

An unfortunate side-effect of this activity has been to anchor the public debate firmly around the ICB's remedy of ringfencing, which was already a compromise on the original proposal of structural separation. This shift is partly a result of George Osbourne's  Mansion House speech in June (see earlier post) and partly a result of recent bank lobbying. Like it or not, it means we are now discussing whether to compromise on a compromise. 

Luckily, the arguments against separation and against ringfencing are nearly identical and can be rebutted just as easily. In the article below, replace "inside or outside the ringfence" with "utility or casino bank" and the arguments work just as same.

If the anti-ringfence arguments are sufficiently discredited when the ICB launches its report on Monday it will be much easier to move the debate back to separation, although the politics still look pretty challenging.

It is surprising that any politician would want to resist a set of relatively mild bank reforms after the biggest financial crisis for 80 years and a deep recession. The fact that David Cameron is having reform jitters shows just how good the industry is at talking people round in private. Whether it can do so in public and avoid either ringfencing or separation will depend on the quality of its arguments, so let's see how many of them stand up.
Here are eight arguments against bank reform culled from the weekend press and eight rebuttals.

Friday, September 2, 2011

Ringfencing as a laboratory experiment

The banks are predicting doom if ringfencing comes, saying their inability to lend will stifle growth and it will all be the government’s fault. The government’s reaction in the short-term, I hope, will be to call their bluff and do it anyway. Let’s see – it’s only ten days to go before the ICB publishes its final report.

But what happens a bit further down the track?

According to Martin Wolf’s latest piece, the UK may already be locked into its longest depression for a century. He says a structural decline in output could condemn us to low growth and low productivity for years.

What do you think the banks will say in 2013 if, as Wolf predicts, the economy is sick as a dog?