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Cleaning up bankers' mess

Robert Peston | 00:01 UK time, Friday, 1 May 2009

Bankers have made "an astonishing mess of the financial system".

So say the MPs on the Treasury Select Committee - and you'd walk quite a distance, across continents, before you would find many who'd disagree with that verdict.

But the committee's latest report in its investigation of the financial crisis spreads the blame more widely, saying that governments, regulators and central bankers all share responsibility for "sustaining the illusion that banking growth and profitability would continue for the future".

What an expensive illusion that turned out to be.

So what, for the MPs, is the way to prevent a repetition of this debacle and to make the best of our recovery from it?

Well, that's work in progress. But the committee does have a few recommendations.

For me, the most interesting relates to mutual building societies.

Dunfermline building societyThe committee believes the building societies have operated a "safer business model" than most commercial banks (with the recent woes of the Dunfermline Building Society as the conspicuous exception).

But if building societies, or mutuals, are not just an example of solid Victorian values but are also our financial future, it's a concern for MPs that establishing new building societies appears to be much harder than it was when the Ecology Building Society was started in 1981.

In that context, they also say it's unfair and troublesome that building societies are forced to shoulder a disproportionate share of the costs of the Financial Services Compensation Scheme - which is the fund that compensates depositors for some of their losses when banks go belly up.

The MPs call on the FSA to review the societies' heavy contribution to the compensation scheme "with urgency".

Among their other recommendations are that the government take steps to improve competition within the banking industry, because they feel that the benefits of competition were sacrificed in initiatives to prevent banks from collapsing (this is a big hello to ministers' decision to allow a mega retail bank to be created when Lloyds rescued HBOS by buying it).

Also, the committee is not persuaded that the rescued banks have yet done enough to reverse the squeeze on lending to small businesses, in spite of their promises to do so. And the MPs fear that when banks do lend to vulnerable smaller businesses, they're charging too much in the form of fees (as opposed to interest).

The committee is particularly concerned that UK Financial Investments, the body charged with managing taxpayers' stakes in Lloyds Banking Group and Royal Bank of Scotland, isn't sufficiently arm's length from the Treasury, or insufficiently precise about its ambitions. UKFI should, say the MPs, be put on a proper statutory basis.

However, if I was surprised by one element of the report it was that MPs felt that retail customers like you and me stand a proper chance of evaluating when banks are taking silly and undue risks, even though recent events have proved that the most financially sophisticated central bankers, regulators and investors in the world were for years ignorant of the banks' complex and crazy investing and lending activities.

No matter that the FSA wasn't bright enough to see that RBS and HBOS were galloping towards the cliff edge, the MPs believe that the government should abandon its 100% protection of retail deposits - which is the current de facto reality - and make it clear that the formal £50,000 limit on deposit protection is not just a theoretical limit.

Why? Well the fear that depositors' money was at risk would "reintroduce the depositor's obligation to consider matters other than the bald interest rate in choosing where to locate their investments and thus ensure that the banks had a disincentive to be reckless".

Hmmm.

Most, I think, would say it's a lovely idea that consumers could have enough relevant information to judge when and whether Mega Bank Inc is investing sensibly or gambling recklessly - but is it remotely realistic in an era of financial globalisation, even if the regulators start to do their jobs properly?

Which brings us neatly to the contentious point of the moment, which is whether the big "universal" banks - such as Royal Bank and Barclays - should be cleaved or broken in two. This would mean that the likes of RBS would be split into a putatively safe and simple retail bank and into a supposedly riskier investment bank playing in the global casino.

The argument is that such a division of banking activities would make it easier for regulators to protect the deposits which matter - that's our deposits by the way, those of retail savers.

I've bored on about this a good deal in recent notes, and will bore on a bit more over the next fortnight, when the chancellor confirms in a White Paper that he's not minded to dismantle the big banks in this way.

The MPs however are showing due deference to the governor of the Bank of England, whose instinct - they say - is that "a separation of retail from investment banking functions is 'very attractive'".

They won't dismiss his view "lightly". But nor do they sign up for it.

Which is probably not unreasonable, because there would be serious economic implications from breaking up the banks.

So however numbed you are by debate on the arcana of banking regulation, a bit more deliberation probably wouldn't hurt.

Comments

Page 1 of 4

  • Comment number 1.

    Finally, the beginning of a real acknowledgement of the massive wealth destruction that was allowed to spread unchecked through the banking system for far too long. The global shadow banking system, tax havens, offfshore accounts, a reckless bonus system, idle regulators, morally corrupt accountants and rating agencies, politicians with both eyes shut: such a five star recipe for disaster can not be allowed to continue.

  • Comment number 2.

    It is all very well a Committee of MPs pointing the finger at the bank, but the government was hardly blameless themselves.

    The government fail to raise interest rates sufficiently when the debt bubble was forming from 2002 onwards. They also used the CPI rather then RPI inflation measure that did not include house prices. So the government too failed to see the link between the housing and debt bubble.

    The trap the banks fell into was that no one wants to shout about the risks when it seems like everything is going so well ... and the government fell into exactly the same trap!

  • Comment number 3.

    I'd think the splitting of big banks would be a great step! It would allow them to seperate their more contentious activities from regular, day-to-day banking, which over half of us are interested in. As we are now in a state of deflation, there may be some rash decisions made, but a little more time to make sure that such a split is the right way to go would be more than viable.

  • Comment number 4.

    Ho hum...another banking story!

    Bob, you're becoming a bit of a one trick pony!

  • Comment number 5.

    The 50,000 safe limit on depositors (or even a lower limit) has the desirable effect of spreading the deposits around. It actually makes it easier for smaller building societies to survive or, as your earlier post points out, be founded.

    And if we are seriously considering the possibility of founding new building societies and institutions isn't one way to allow the larger credit unions to grow by offering mortgages?

  • Comment number 6.

    We keep being told that no one saw or could have forseen the banking crisis. Nonsense. i read a newsletter that has been predicting it, almost exactly as it has happened, since about 2005/6. And one in America which was doing the same thing. Goldilocks was more attractive politically and thats what was sold to us.That's what people chose to hear. Break up our banks and there won't be a British bank left - they'll all be small enough for dicey big foreign banks to take over.

  • Comment number 7.

    This report is spot-on.
    But the UK public NEEDS PROTECTION from the antics of these huge banks.
    Joe Bloggs the plumber and his kids CANNOT be the guarantor of about a third of the worlds' financial deals.
    My view is that they need to be split up, regardless of the consequences.
    All parts that fail (except UK retail and savings) should be bankrupted.
    Other countries may have to do the same, and everyone should make it very clear that the next time such a failure happens, what happened to Lehmans will happen to all.
    Also, where are the prosecutions?
    If the bankers' negligence had happened in medicine, or the energy industry, many would now be either struck-off, or bankrupted, or in jail.
    I notice this morning that they are still paying themselves huge bonuses....even though ALL of them would have gone broke without taxpayer help (runs-on-banks would have been universal).
    This is really unacceptable.
    They are making the government, and the rest of us, look like complete fools.
    Their parasitic image still seems to be justified.
    If you don't like it.....start withdrawing your savings...and let them know why.

  • Comment number 8.

    WOW!

    So the lack of regulation, the sligh of touch of the FSA, and the drive to keep the banks registered in the UK at all costs had nothing to do with it!

    So G.Brown was right all along the problem did actualy have nothing to do with him!

  • Comment number 9.

    Casting blame after the event is easy and not of much value. Not that I condone the reckless plung into logical absurdity by the banks, regulators and particularly Mr Brown into believing that new wealth could be continuously generated by designing increasingly complicated spreadsheets but any fianacial institution not following the herd to some degree or other would have been out of business in short order.

    I am all in favour of breaking up the banks and properly isolating risk to where it belongs - with customers who will pay the risk premium. Retail banking and the average customers thereof should not be penalised when the higher risks are blended with the lower and result in higher charges for low risk borrowers.

  • Comment number 10.

    As I posted at 4.40pm yesterday when this blog first appeared befroe disappearing again

    I've read through this twice but I can't find any mention of Chrysler anywhere - it seems to be all about banking.

    I'm presuming to clean up bankers mess you need some Kleenex?

  • Comment number 11.

    Just today USB, the Swiss bank, refused to share account details of suspected US tax fraudsters with a US court. USB claims that without proof they cannot share these account details, because they would break Swiss law if they did so. Well, the proof sits in their vaults and computer systems and of course they know it for sure. Such intransigence needs to be stopped and needs to incure severe financial penalties, globally enforced. The time is now to stop such clearly visible madness, which is an integral part of the story of the credit crunch and subprime bubble. The proceeds of the financial casino that was allowed to run wild over the past decade had to go somewhere. All too often these profits went where they were supposed to be safe, unregulated and untaxed: they ended up in tax havens and offshore banking. For example, many hedge funds are based in or operate through tax havens and lightly regulated overseas territories. Change is needed.
    You can read more at:
    http://globalinsights.wordpress.com/

  • Comment number 12.

    Tell the banks to open their books in a clear manner including off balance sheet. Or would that cause a panic? Instead let shareholders manipulate the market price and suck in private investors to yet again have their fingers burnt.
    The banks will be regulated to such a degree they will look like utilities. The major shareholders will be taxpayers and anyone who has held a bank share for more than 2 years will shortly realise they have been diluted to such a level they are meaningless.
    Banks are needed to lend. If they are not doing that, why support them?
    Did I read the Fed have delayed the stress test results. Banks are not just too big to fail. They are too big and can dictate to governemnts!!

  • Comment number 13.

    As I work in a Building Society myself, this is hopeful news for people like me. It is good to know that MPs wish to reward prudence and care for the better managed Building Society sector. Also, that allowing new ones to be created will create a more evolved competition and be able to address the ever changing needs of the customer. Of course, other Building Societies may still merge in the future, but this kind of fluidity is to be expected. Perhaps new Building Societies could start in places in the UK, where many financial sector jobs have been lost recently - experience on tap.

  • Comment number 14.

    Slightly off topic,

    its nice that the goverments mortgage protection service launched last year has now saved ONE! yes ONE! household from losing their house. now all we need is the small business service launched at the same time to save a business then the goverment can claim they are both complete sucess stories.

    Look out for the press release in the next few days telling us how well the system is working and a picture of the happy house hold saved at the budgeted cost of 250million!

  • Comment number 15.

    Tax payers are having to underpin traditional personal savings/accounts. Tax payers should never be asked to underpin high risk lending/gambling, driven by self interest/greed. We do not underpin people's flutters in the casino or on the horses (and these kind of activities should arguably be taxed more). Hence the separation of Traditional Retail Banking from Risky Investment Banking is needed to reverse the decisions made allowing them to integrate. This is a NO BRAINER in my humble opinion and I believe most people see it this way. It will eventually have to happen, and I believe many are starting to realize this (including some MP's and the Bank of England Governor) - so why is it still being avoided/dismissed ... NO BRAINS, or just more SELF INTEREST and GREED?

  • Comment number 16.

    @11

    Is that USB 2.0?

  • Comment number 17.

    Listening to the very pompous Lady from the British Bankers Association earlier on Today I was incensed by her suggestion that Bankers are in the main doing the right thing.

    Right thing for whom?

    HSBC and Barclays may not be in the mess that the rest are, but it has not stopped them jumping on the usual bankers bandwagon and charging rip-off rates of interest.

    Last year my business overdraft was costing me 7% at a time when the base rate was 5% a factor of 1.4 times base.

    Now HSBC are attempting to put that rate up to 10.4% when base rate is 0.5% a factor of close to 21 times base. How gross is that?

    There can be no jusitification for such vile behaviour and yet they are all doing it.

    The same is of course true with credit cards where interst rates stay absurdly high, so when its raining for everyone else these buggers are laughing their socks off.

    What has the government done about any of this?

    Nothing.

    I believe she also made reference to the fact that banks are lending more than they did this time last year. When one takes account of the increased charges and interest rates I have no doubt that most of the alleged increase in lending will be taken up by the increased value of the wedge that has actaully remianed the same from last year!

    Bankers, statisticians, politicians, there is one word that describes the lot and I will leave you to work that word.

    Andrew Werrell
    Berkshire

  • Comment number 18.

    any actions taken by GB will be those that will not allow the finger suppission to be pointed him. Therefore we will get the wrong outcomes.

    GB will look only after number one, the ulimate expression on greed.
    that is only suppose to be practiced by bankers.

    So the Mr Average is a better judge of the Banks trading position than

    0) GB
    1) HMG
    2) BOE
    3) FSA
    4) auditors
    5) The shard holders
    6) the board at the bank
    7) The managers
    8) The traders
    9) The staff
    10) Anybody Else except them

    There having a laugh

  • Comment number 19.

    Banks are constantly devising ways of cheating savers of a decent return on their investments and you cannot expect the saving public to find the time to monitor the activities of the banks and act accordingly. Regulation is always second best to supervision. We need a sizeable proportion of the banks in some form of public ownership with both employee and consumer representation at policy level. The needs to be proper codes of conduct sustain by statute covering both private and public financial institutions.

  • Comment number 20.

    At 08:44am on 01 May 2009, stevewo wrote:

    makes sense. I'm going to put my cash in a building society.

  • Comment number 21.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 22.

    I'm furious that more hasn't been dealt out to those in the banking community who were responsible in all of this. It is my impression that they have melted into the system to probably re-appear somwhere else in the near future. And now we say we can't afford to let a few hundred Gurkhas reside in this country. I'm lost for words.

  • Comment number 23.

    I am sick and tired of hearing what an awful mess the bankers made of global finance. Let's get back to what the regulators were supposed to be doing: the Treasury, the FSA and in America, SEC, and a few other nice, comfy bureaucracies, not to mention governments ours included, who were praising the bankers for their creativity and drive, taking huge tax swipes and glorifying in the huge wealth the bankers were "creating".

    What sort of regulator regulates financial instruments they know nothing about AND ALLOWS THE ISSUER TO DECIDE THE RISK? Because that's what they were doing.

    SO LET'S STOP BLAMING THE BANKERS. LET'S TURN IT BACK ON BROWN'S RIDICULOUS SEPARATION OF FINANCIAL RESPONISBILITIES, GREED AND IGNORANCE ON THE PART OF REGULATORS. It was never like this when the Bank of England had overall control, and before Thatcher etc slowly but surely eroded regulation (set up in the 1930s and on to, would you believe, prevent another 1929 crash happening again).

    Give it back to the Bank of England.



  • Comment number 24.

    'Bankers have made "an astonishing mess of the financial system".'
    That's being rather kind I think. Breaking up the big banks should be a priority rather than just talk. The chancellor and the Treasury Select Committee have obviously forgotten the old adage, which goes along nicely with the Victorian Banking Ethic, of 'Too Many Eggs in one Basket' or in this case not enough Baskets.
    When the Child Trust Funds first came into being, we did a lot of research into which would be best. Almost all of the providers led back to one sole investor. We eventually found one, a small building society that did not kow tow to this big investment company.
    I dont think anyone realised until this debacle that big banks are the same, and that all their eggs are in one basket.
    A return to so called 'Victorian values' banking is good, but lets not forget the Victorians were far from perfect and actually a new responsible banking system needs to be found, a hybrid between the old and the new, but lets not forget, that the same people work in the industry and its all very well to say the system needs changing, but you have to change the people and their attitudes as well.

  • Comment number 25.

    #6. mullecon wrote:

    "We keep being told that no one saw or could have forseen the banking crisis. Nonsense. i read a newsletter that has been predicting it, almost exactly as it has happened, since about 2005/6..."

    Thousands of predictions - economic and otherwise - are made every day of the year, in books, newspapers, academic papers and internet blogs. Many of them are contradictory and the vast majority will be wrong. But with hindsight it is always possible to find something, somewhere, that predicts almost any event.

    How many newsletters were there in 2005/2006 that predicted something quite different?

  • Comment number 26.

    I don't really care if those that live by the sword die by the sword, it's taking the rest of us down with them that is the problem.

    We need the equivalent of a new Glass-Steagall act (the repeal of which was surely the prime cause of all this mess) so that if investment banks ever do such stupid things again (which they surely will, for greed destroys intelligence) they can be "allowed to fail" without destroying the savings of ordinary folk who were looking for safety.

    In software we have process isolation; in networking, firewalls; in shipbuilding, bulkheads. Perhaps it's time to listen to the engineers who actually know how to build large, complex dynamic systems with failsafes instead of leaving it to a collection of PPE types (or worse, pure mathematicians) with God complexes? ;-)

  • Comment number 27.

    Many banks are designed to confuse people and profit from this process ... for instance one innovative bank leader wanted to apply lean practice to find new ways of adding value and simplifying things for customers ... but the executive board rejected the idea for precisely the reasons above!

  • Comment number 28.

    BBC Breaking News!!

    CLEANING UP THE BANKERS MESS!!

    From this website!!

    "Smash and Burn in the Insolvency Courts and still time for lunch and a 3pm finish!!

    Read how the judge rattles through it!
    Read how the judge won't stand for any messing!
    Read how the victims sweat!
    See the poor judge lose his voice (but not his fee!!!)
    See how lucrative it is for the law profession!
    Straight out of Dickens says one commentator!
    Hammer them in the courts say Howard!

    "By the end of his day in court, no wonder the barrister representing Her Majesty's Revenue and Customs has nearly lost his voice.
    The court has heard 240 cases - an average of one every 90 seconds - and Mr Daniel Margolin has had a part to play in most.
    And looking at the evidence around, the companies court at London's Royal Court of Justice are unlikely to get any quieter.
    Even the member of staff on reception admits: "The case list is getting longer and longer. It's not going to improve any time soon."
    The latest analysis from PricewaterhouseCoopers (PwC) says the downturn is showing "no signs of abating" with 5,483 firms becoming insolvent in the first quarter of 2009, up 57% on the same time last year.
    "We can see that UK businesses are still suffering from the effects of the global recession as more and more of them enter into insolvency with no apparent signs of a slowdown in the near future," says Mike Jervis, partner in PwC's business recovery services practice.
    Jam packed
    The problems facing UK businesses is set out in a very human form in Court 55 on The Strand in London.
    As it opens at 10.30, 22 barristers are crammed into the benches with files and boxes full of legal papers tied with white ribbon littering the tables.
    Soon after the crowds rise for Mr Registrar Jaques, who's hearing the cases, the atmosphere in court 55 resembles an auction house more than a legal platform.
    Within seconds the first case against Crystal Vision LCD TV Ltd is dismissed as their papers are not in order. The following company Freemarket is dealt with in under a minute.
    The third company wins a 14 day adjournment and, another firm is compulsorily wound up and yet another wins a vital 28 days to pay its creditors.
    And the list goes on.
    Herded through
    Case numbers and names are rattled off, while barristers will argue a company - or creditor's - case, with the judge delivering his decision, all at breakneck speed. The most frequent ruling is delivered with the words: "All the papers are in order, usual compulsory order, main proceedings."
    With that one sentence the firm is wound up.
    By 11.10am, 58 cases have been heard, and herded, through the system, and yet the tide of managers, directors and barristers keeps coming.
    Some bosses show the stress of the day, hesitating and stuttering their way through their all-too-brief time in the spotlight.
    One director, sweating profusely, begs for the court to offer some extra time to draw up a banking order to pay of his debts, claiming that the Easter holidays delayed him getting his hands on the cash in time.
    The plea falls on deaf ears and the firm is wound up - the words "compulsory order granted" ringing around the room as the chairman of Camp Lane Development Company exits the court with his colleagues.
    Another manager asks the registrar whether he can have extra time to discuss his case. "No you may not," is the abrupt retort.
    Unfortunately, this company will be just one more added to the pile of statistics at the Insolvency Service.
    'No messing'
    By the end of the morning session, at 1.15pm the court has swiftly sealed the fate of 236 companies - a fact not missed by the solicitors on the sidelines.
    As they exit the court to grab a bite, one remarks that the Registrar was taking "no messing today. 'Can we have 10 more days'. 'No, next'.'"
    A further four companies are granted a little more time to be dealt with in greater detail after the lunch break, while two from the earlier hearings are revisited.
    Greater detail, it emerges, means at least three or four minutes a case as the recorder asks the remaining four barristers how long each case will take.
    Here Mr Margolin usually raises concerns or haggles over the costs involved in the cases or length of time their payment will take.
    One case, KBSA Inc Ltd gets a little extra attention as Registrar Jacques advises two foreign creditors on how the English legal system works, but by 3pm the court has risen and the barristers are packing up for the office.
    By the next winding up session on the following Wednesday business is unlikely to be any quieter, but Mr Margolin may have had time to recover his voice."



    This disgusts me, it really does.

    GC



  • Comment number 29.

    "reintroduce the depositor's obligation to consider matters other than the bald interest rate in choosing where to locate their investments and thus ensure that the banks had a disincentive to be reckless"

    But how exactly can a depositor judge the credit worthiness of his or her bank? No one should forget it was not so long ago that the likes of Freddie Mac, Fannie Mae and AIG were all AAA rated (check out the 2004 annual reports). If the credit rating agencies got it so grossly wrong, how can the man on the street hope to make such a judgement? Or are we just suppose to all run along to our banks and withdraw all our savings when we get a bit nervous?

  • Comment number 30.

    If Gordon Brown wasn't a politician, I bet he'd be a banker

    The whole scenario was a classic blend of multiplied errors and assumptions, with large helpings of greed and naivety and a sprinking of hapless politicians. Mix all these ingredients together in a leaky pressure cooker, put in the oven on the highest heat possible and put your feet up to read favourable news reports.
    Wait till cooker explodes and house burns down.
    Act surprised and blame everyone else
    copyright Gordon (Ramsay) Brown, 2007-2009

  • Comment number 31.

    These banks are bust. Its fairly simple really, there has to be major change. Whether that is dismemberment or whatever. What troubles me rather is so little is being said about the political fallout. The culprits for all this are Conservative governments just as much as the current Labour one. The Conservatives seemed to have decided that they have won the next election. Yet, as the 'creditcrunch' unfolded they had nothing to contribute, and now they still don't.

    Most of what Robert Peston talks about is the conversations of affluent people who want to fix a failed model. There is zero being said about local economies, the role of , for example, credit unions,microfinance.

    I work hard to earn tiny amounts. I don't mean relatively, I mean tiny, just trying to get by. Every time I see these bankers, right now, trotting off with their huge bonuses, I feel that a massive con has been perpetrated on everyone. And that, in truth, the Conservatives, their, banker friends, and their devotion to the interests of business and the 'marketplace' are a large part of it.

  • Comment number 32.

    Aaah-ha. Lloyds HBOS merger a completely bad idea then, yes. Uncompetitive, inappropriate (as I bet Lloyds customers and shareholders would agree), plain worng. But, it saved Gordy's skin at the time, which I guess is all that mattered. Now what kind of mess will come out of sundering them, and where will the liabilities reside? We, as taxpayers and customers, have been royally stuffed for Brown's career.

    Meanwhile, lending still isn't happening. At least not like it used to. When that's a matter of whether or not be buy some crappy Chinese tat, maybe it's a good thing. When it means our businesses can't obtain working capital or r & d investment that allow them to compete, then it's bad for the country as a whole.

    There's one big point. we can't afford not to view banking operations in in terms of national interest. I'm pretty sure other countries do, which to some extent will be driving the howls from our European, er, friends. But, if we are talking of a return a Victorian model, then we should see that in context of our banks being tools to support and nuture our industries, rather than just feed off them.

    However, yesterday Robert you made a point about a shortfall of something like £100bn in repatriation of funds afflicting UK banks in the contraction of lending. This must directly deplete capital. We have not had it explained to us how such a massive amount is affecting the basic solvency of the banks. Or has someone found a away of portraying this as an asset?



  • Comment number 33.

    I believe all agree that retail banking needs ring fencing from other riskier banking activities.If the tax payer is to provide insurance up to £50,000 then the tax payer should take a reasonable premium ,this premium should be flexible,so that low risk organisations (Building Societies)pay less .Dodgy banks should be refused cover.

  • Comment number 34.

    Re the comment: The committee believes the building societies have operated a "safer business model"

    Only Believes! Of course operate a safer business model.

    Unlike buliding societies... Banks take Risks!!! By backing innovative entrepreneurs and businesses who are the real wealth creators and employers of this country.

  • Comment number 35.

    I think we are all agreed that more regulation of the banks is required. The question is how? One of the big problems is that our present accounting system was designed eons ago even before computers were invented. What is required is a double accounting system, one double book keeping standard system for regular trade and another NEW system to account for hedging, credit default swaps, all derivates etc. The new system should set out to clearly highlight to the main board of the bank the bank's exposure on a daily basis. There should be a limit on the allowable risk in % terms of the banks capitalisation. The main board members should be criminally responsible if the risk is allowed to exceed the allowable limits. Proper "Off Balance Sheet" accounts (or let's call them records) should be filed every month in parallel to the standard accounts.

    Another question is why is the gearing of the banks so high? In less troubled countries banks have a much lower gearing. Does this not tell us something? Instead of 6% gearing, why not make it 50%?

  • Comment number 36.

    How about variable depositor protection? The FSA and/or newly regulated rating agencies give each bank a risk rating. Deposits at lower risk banks are protected to a higher threshold. Banks made to have a legal obligation to publish their protection threshold. That would make it nicely visibly to Mr Depositor.

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    Banks got too big for their boots...and too big for our health!
    It must never happen again....but where is all the new regulation - where is the reform of the banking system? Why is it that I get the feeling that the banking fraternity is doing all that it can to frustrate reform becaue it believes that Larry Lightweight and the 'Banker Boys' will win the election next year and give them an easy ride?

  • Comment number 39.

    Are there legal minds that can provide a legally required employment contract that places Banks' directors' personal assets (i.e. including the home that they and their family own and occupy)at risk of forfeit, if they make 'an astonishing mess of running their bank'?
    If so it should be a cheap way of dissuading future bankers from becoming addicted gamblers whilst leaving them free of the dead hand of government control.

  • Comment number 40.

    in response to #16 IfAtFirst:

    Thanks for the correction. I typed too fast in my previous comment #11 . Of course I meant UBS (Union Bank of Switzerland), not USB. It's good to see that someone reads these comments carefully.

  • Comment number 41.

    #34 - 'Banks take risks'.

    Banks have taken massive risks that they did not understand with various complicated financial vehicles which have caused the current crisis and also in funding mortgages at 125% and with no supporting earnings/evidence of earnings.

    The taking of these risks has caused the current crisis.

    I can not agree that banks take big risks backing entrepreneurs and businesses - sure sometimes these companies fail but the banks very rarely lose out as they are either first in line for recovery of the assets or have personal guarantees over the directors assets. Banks today lend to businesses on two criteria - firstly sufficient security (even prior to the crunch for a normal business this was 70% of asset values), and secondly the ability to service the debt. Otherwise they don't fund the risk.

  • Comment number 42.

    SO - our overpaid priviledged MPs stating the obvious....how wonderful they are!!

  • Comment number 43.

    Interesting conflation of mutualism with "Victorian values", Robert ; the two have rather less historically in common.

  • Comment number 44.

    is this not just a story of the pot calling the kettle black.
    i agree that those running the banks appear to have been greedy self obsessed lunatics but it was the governments lack of control and poor judgment that started all these problems.
    then it was this government failing to do the right thing and resolving this countries problems before blowing hard around the world about how great they are.
    banks have always needed a strong government dishing out secure regulations.

  • Comment number 45.

    MPs are also trying to pass the buck for failing in their own responsibilties.While many groups were partially responsible the Federal Reserve and BOE were the main culprits for not fully appreciating the role of asset price inflation in creating unsustainable credit creation.
    It was compounded by many Governments but mainly the Bush and Blair/Brown
    administration voracious appetite for unsustainable spendinge.

  • Comment number 46.

    30. At 09:27am on 01 May 2009, eddixon wrote:
    If Gordon Brown wasn't a politician, I bet he'd be a banker

    I bet you a billion pounds that when he stops being a politician (some time soon I hope!) that he will become a banker.

    just like his predecessor did...
    http://news.bbc.co.uk/1/hi/business/7180306.stm

  • Comment number 47.

    # 17. Werrellofdesign

    It's not just the interest charges on borrowings, it's also the interest they pay on savings which stink. Not to mention the way they treat their "valued customers".

    A (nominally) UK bank which recently passed a stress test has twice in two years now sidelined me into a low-paying, no-longer available account.

    The way this now defunct account operates is, surprisingly, pretty much identical the new higher-paying account. But they presumably believe that I couldn't possibly be interested in earning higher interest - since they haven't drawn my attention to the new account in the way they used to do with "cheap loans" and still do with travel insurance.

    And, don't be fooled, at least some building societies behave in exactly the same way.

    All of which makes the Investec High 5 account a rather attractive "invest and don't get dumped" option.

    Apart from the issue of the minimum deposit, though, these days higher than average interest rates seem to be a marker of a bank heading for trouble.

    There again, maybe not. But Robert is right in his analysis of my ability to assess Investec's worldwide operations. How on earth can our representatives assume any different - not distracted by the price of bath plugs by any chance?

  • Comment number 48.

    So we are back to the blame game and picking over the entrails of what has gone before. Whatever impact the recession is having on you, wherever you are and however out of control you may feel, you still have a choice about how you respond to your circumstances. What is going to help you move on the quickest - finding someone to blame or taking action to improve my situation? The Survivors Guide To The Credit Crunch helps readers to take positive action, boost their personal resilience and get a brighter outlook. See the articles at http://www.thesurvivorsguide.co.uk/latestblog.html

  • Comment number 49.

    "whether the big "universal" banks - such as Royal Bank and Barclays - should be cleaved or broken in two"

    Or indeed whether they are viable at all. There's renewed concern over capital adequacy in the US, and it remains a strong possibility that the pressing issue is another round of re-capitalising, with all the upheaval that entails.

  • Comment number 50.

    People really do have to realise that what the Treasury committee has also put their finger on without realising it is that this "mess" is also one of the main reasons why there has been a fall in manufacturing, in the number of start-ups, the drop in UK ownership of strategically important companies.

    The damage done across the economy has been huge not just in the short term but the medium and long term as well.

  • Comment number 51.

    I suppose I will be classed as a true innocent by asking the simple question "where has all the money gone - who has got it?" Surely it can not have just evaporated into thin air or gone down a black hole, and ceased to exist. Can anyone explain why it is not all still floating around in the world economy? Is it just a total loss of confidence in the value of all those tangible things which underpin the value of money?

  • Comment number 52.

    All credit to John McFall in opening this up. I am a little confused on the terms of reference and the committee's future intentions.

    At para 84 they say " However this was a failure not only within individual banks but also the supervisory system designed to protect the public from systemic risk." At para 17 the say " Governments politicians regulators and central banks in the UK and around the world share a responsibility for sustaining the illusion that banking growth and profitability would continue for the forseeable future."

    This report goes very lightly on these polically charged aspects of the role of the Tripartite Committee in the UK even though it asks itself why we have got to where we are. There is apparently an intention to look at international "architecture" in a future report. I hope this doesnt provide a means for the role of the UK government, its regulators and central bankers in the lead up to this crisis to be 'lost' in a wider remit. Afterall, an election is coming up. This is why we need a public inquiry.

    The other important point this report seeks to address is whether lending supply ( as opposed to demand)is throttling recovery. In other words, there remains a huge impairment to recovery which requires the highest priority. The credit market still aint fixed!!

  • Comment number 53.

    #22 Alexbabic

    The reason that there is no acountability is because the banks and the Government are so tightly linked that if the Government tried to place any proportionate blame onto the bankers the resulting fallout would be huge. What company would dream of pumping in so much money into a failing enterprise yet not DEMAND that they take control of running it.
    It looks like the Government has pumped the money in, left the banks to sort themselves out and handle a degree of critism in return for not rocking the boat.

    As for the FSA, they are staffed by ex-bankers or aspiring bankers and would have been so heavily critisised by their peers or even sanctioned for questioning the position of any financial institution that I understand why they did not raise any concerns.
    The regulators need to be independent of the financial institutions and the Government. Does anyone truely believe this to be the case?

  • Comment number 54.

    The idea that ordinary retail depositors are in a position to judge the relative risk posed by different banks is ludicrous. What planet have they been on for the past 2 years?

  • Comment number 55.

    Treasury Select Committee's report is a COVER-UP of the most nauseating kind.

    The mechanisms of the state drove the banking crisis. The state encourage the crisis to happen. The education of economists and so called 'quants' directly drove the crisis onwards and upwards.

    (Mechanisms of the State = Bank of England, its governors, the whole MPC, the FSA and most fundamentally the Treasury and its present and former permanent secretary. Oh and the poor simple ignorant politicians, and us who voted for them! Nobody wanted to know for the last decade that the boom was noting but an illusion - they were told by many people and these people were excluded and crushed by the state and media system. The Treasury Select Committee's report is just a continuation of these half-truths!.)

    Lest I am criticised for being entirely negative I must add that the way forward is to return to sound and valuable money once again. Zero interest rates = money that is worth nothing. So interest rates must go up to reasonable levels (the 4 to 6 percent range) NOW and until they do there can be no soundly based recovery. The transition between the present stupidity will, and indeed must, be nasty - and deconstruct the mega banks!

  • Comment number 56.

    17
    if banks are lending at over 10% why can I only get around 2.5% interest?
    seems to me the banks are getting worse

  • Comment number 57.

    So, Building Societies have come out of this financial goo whiter than white?
    Last September a well known society offered to lend my wife and I nearly five (yes 5!) times our joint income on a mortgage - needless to say we declined their kind offer. I also know of a more recent case where the same society have offered a self certifying mortgage with no checks whatsoever. So maybe not so much a case of better managed and a case of better luck than the banks!

    Also, "the committee is not persuaded that the rescued banks have yet done enough to reverse the squeeze on lending to small businesses, in spite of their promise to do so"
    Our 'small business' has been trying to secure funding for a massive export program from some of the rescued banks under the various initiatives brought in by Flash but to no avail.
    Result? We could all be out of work in the next two months.
    The word on the banking street is that the rescued banks are using the initiatives to re-finance their business loans books in order to lose only 25% of the loan and not 100%. Very honest of them!

  • Comment number 58.

    We can always rely on the British Bankers Association (BBA) to be economic with the truth even in good times!
    How much of their new lending is actually re-newing old agreements with very new and extemely high are-arrangement fees!
    They can hark on all they like the fact is they have screwed up and are in absolute denial which has, as yet not, been definitively mentioned.
    All these 'stewards enquiries' are allowing banks to continue to rip off every customer and an emergency bill shoudl bee presented to parliament allowing it overriding to ensure banks are no longer allowed to opeorate in this vein with eth penan;ly that failure to gte their house in order will result in their license to operate being removed.
    By the way why does it still take 5 working days for a cheque to clear and 3 working days for a BACS payment to clear.
    Do their spokespeople have no feelings of guilt when they deliver all this drivel time and again.
    If a bank wants to speculate then use its own capital not depositers how difficult is that to understand and put into operation.
    Lets wake up please and see soem action before teh good work of the Treasury Select Committee is lost through the concerted vacillation and delay tactics of the banks.
    Lets just get on thing straigh British Clearing Banks are only interested in their own bottom line and depositers are aggravating nuisances. All the rheroic suggesting otherwise is absoluite baloney and pure tripe.

  • Comment number 59.

    It is clear that the market now thinks RBS in particular are well-protected, generously funded, and making filthy profits again.
    Their share price has now bounced 400% since the start of the year.

    Without the bail-out they were a basket-case, and they should still be lanquishing at about 20p a share. The government should be leaning heavily on all these banks re. loan-rates and treatment of customers.

    The days of fat-cat bankers are still with us; don't be surprised if they come looking for big bonuses at the end of 2009 as a reward for a 'fabulous' bounce-back ..........

    We are just being ripped off again, this time with overt collusion by the Government's lackeys in UKFI, Treasury, etc. etc.

    Regards,

  • Comment number 60.

    We all know who is going to be paying the bill for all this incompetent greed....our children and grandchildren.
    Without taxpayer support they would ALL have gone under.
    And yet they are STILL paying themselves huge bonuses.
    How many millions do they want?
    How much money do they need?
    They are now taking the food out of the mouths of our kids and grand-kids.
    Come on, hopeless government.....do something.
    "Wealth creators"....I don't buy that.
    What about the guys on the rigs, risking their lives to bring us millions of tons of oil and gas every year.
    Or the guys who grow and supply our food.
    Or the guys who build and maintain our power stations and grid.
    Surgeons, who save our lives.
    Or these 9 to 5 characters in Canary Wharf?
    Who are the real "wealth creators".
    They are "taking" our money, and our kids money.
    City bank staff.....parasites.

  • Comment number 61.

    26. At 09:21am on 01 May 2009, sandtreader wrote:
    .......We need the equivalent of a new Glass-Steagall act (the repeal of which was surely the prime cause of all this mess) so that if investment banks ever do such stupid things again (which they surely will, for greed destroys intelligence) they can be "allowed to fail" without destroying the savings of ordinary folk who were looking for safety.

    In software we have process isolation; in networking, firewalls; in shipbuilding, bulkheads. Perhaps it's time to listen to the engineers who actually know how to build large, complex dynamic systems with failsafes instead of leaving it to a collection of PPE types (or worse, pure mathematicians) with God complexes? ;-)
    ..................
    Absolutely agree about need for regulation and properly thought through preventative measures to de-risk banking activities.
    It's like the Tesco advert -- "Real Baskets at the Banking Regulators" -- resulting in basket case banks...

  • Comment number 62.

    We need more from you on this, Robert.

    We are beginning to get to the central questions of who should own our money system, and how easy are we going to continue to make it for one small section of society (the bankers, the hedgies, the fund managers, and essentially those who play with other people's money) to rip off the vast majority of the people in the UK.

    You express some scepticism about ordinary people being able to make a judgement about where they put their money, and quite rightly so. However given this is indeed one of the guiding principles of the free market, we should try to pursue it as far as is possible.

    We can make progress in this direction....towards enabling ordinary people to know more about how safe their money/investments/savings are etc in two ways:
    - indeed by enacting laws to split ordinary banking from so called investment banking as Meryvn and Vince sensibly suggest (.... please tell me.... is there really any reason at all for keeping them together other than that this will enable the investment banks to use ordinary people's capital for betting purposes without the need to pay the people the proper risk adjusted return - so they can keep this 'rent' for themselves????)

    - we need to follow the main principle that leads to efficiency in absolutely any product/market - the principle of transparency - and demand from financial companies, on a breathtaking scale that is presently beyond the imagination of most people in the City, absolutely huge levels of disclosure.

    Brown and Darling are, much the same as most people in the City (...ah, there's a coincidence...), just running scared, because they know they want to keep as big a financial industry in London as they possibly can, but they have no clue how to do it. They have always and still do equate a successful financial services industry with 'no questions asked', huge opacity, dodgy dealings, subterfuge, inside information etc.... and basically an overwhelming lack of transparency.

    We must change all this, and we must build from the bottom up an open system.

    Meaning we need:

    - a simplification of company/regulatory structures to give ordinary people a better chance of identifying what out there is debt and what is equity (stopping using the term banks for 'investment banks' would be a good start... they are nothing of the sort when their gearing is 40/50 times.....).
    - forcing absolutely every company/person etc who wishes to operate on a limited liability basis and deal in monetary instruments of any sort, to open their books, so we can all see what's what (meaning of course that those who don't want to disclose are free to operate on an unlimited liability basis.....).

    What have the vast majority of the people in the UK to lose in forcing the money lenders to disclose all this information?




  • Comment number 63.

    Don't worry everyone!

    The markets are surging ahead in response to Alastair's budget. Recovery is on the way. What price a mini house price boom just in time for the next election?

    Don't split the banks. If that happens the investment banks won't be able to get their hands on ordinary depositors money to keep gambling with and generating bonuses - then where would we be!

  • Comment number 64.

    I have doubts that a UK version of Glass Steagel would work.

    In US Investment banks are turning themselves into general banks to get access to a deposit base because the wholsesale money market will not provide the necessary cash.

    I remain unconvinced that more regulation is needed - effective regulation is certainly needed. Both in UK and USA a bubble was allowed to go unchecked and banks bet huge proportions of their balance sheet on relatively few risks (basically US mortgage market). The regulators seemed to have failed to understand that and stop it. What is needed is a real understanding of why did the regulators not spot the problem and if they did, why were they unable to stop it. Part of the problem is almost certainly the global nature of the big banks which makes it difficult for UK regulators to understand what is happening in a banks US office.

    11: On UBS. I am sure the USA courts will require evidence the Swiss law prevents Swiss banks from revealing the information. Assuming Swiss law does (pretty likely) then no point blaming UBS, it is the Swiss govt who need to change the law. For USA court to ignore Swiss law and apply US law would be plain wrong - both under international law and probably contrary to the right in American constitution not to incriminate yourself. It would be the equivalent of a US court convicted an American of speeding because the drove a car at 70 mph down the motorway - when the motorway was the M1 in the UK and American was on holiday and driving entirely in accordance with UK law.

  • Comment number 65.

    @stevewo
    The wealth creators are the ones with the money according to current cpitalist rules.
    Thats why farmers who produce wealth are so rich and not going out of business faster than pubs.
    If you invent something wealth creating then you will have to go to the current wealth owners to allow it to make wealth - for them.
    I've worked in IT and chip design for many years - a transistor now costs a billionth of what it did 30 years ago - you get to benefit by having som many more rubbish tv channels to watch.
    Wealth creates wealth - works for the mafia.

  • Comment number 66.

    Oh, and just one more thing....

    For those on this blog who are absolutely fed up with people blaming the bankers when it should be the regulators that are held to account, and additionally maybe those people blaming the regulators when it is the bankers that should be held to account..... I'm fed up with this argument too!

    Has it not occurred to you that..... they are one and the same!

    The bankers have, to their own huge enrichment, indeed captured the regulating system.....

  • Comment number 67.

    #20. eatingantonyo “makes sense. I'm going to put my cash in a building society.”

    I already have.

    #16. IfAtFirst “Is that USB 2.0?”

    Don’t be silly – it stands for Unrepentant Swindlers’ Bunker.

  • Comment number 68.

    #41
    I was trying to point out building societies do not fund business risk.
    Bank fell into a black hole buying and selling doggy sub prime mortgage packages from each other, not lending to business which think is still profitable.
    Expansion ideas dreamt up not by traditional good old fashioned bankers with business acumen, but by greedy people with degrees and titles.
    And who is to blame for banks changing from respected profitable lending institutions into a financial car crash ... Gordon Brown and the FSA for being blind, deaf, daft and utterly ineffectual.

  • Comment number 69.

    #7:
    "This report is spot-on.
    But the UK public NEEDS PROTECTION from the antics of these huge banks.
    Joe Bloggs the plumber and his kids CANNOT be the guarantor of about a third of the worlds' financial deals."

    Expecting any restraints or ultimate culpability to be accepted by the banks is like expecting God to promote Atheism.
    Against God, who can argue?
    ...
    Well yes and look what happened that time. ;-).

  • Comment number 70.

    Personally I don't see the point of separating the retail from the investment banking as seen what happened recently in America, the first sign of trouble with an Investment Bank (Merill Lynch) a Retail Bank (BoA) came in and took them over under the advice of the Fed.

    I believe the problem may be to do with a single multiplier that the regulators, the credit agencies and the banks use to evaluate the health of the bank. What we need is to introduce a number of multipliers so that we don't use the same multiplier for investment and retail banking eg if we have a multiplier of 9 times for retail banking and 3 times for investment banking. Then there will be less incentive for the banks to take the extra risk with our money unless the return in investment banking is more than 3 times the return in retail banking and more to the point the bonuses will not be so easy to come by. I am sure any qualified artuarist will be able to work out the appropriate multiplers for different type of investments/instruments.

    I wonder how long will it take for the Mandarines to come to the same conclusion.

  • Comment number 71.

    British Bankers' Association here. Just to clarify: the increase in bank lending we announced today (a five per cent rise in the past year) is new lending to businesses and it doesn't include any fees or charges: it is money for the businesses that goes straight to the businesses. Go to the website www.bba.org.uk - all the stats are there.

  • Comment number 72.

    #66. Noideaatall “The bankers have, to their own huge enrichment, indeed captured the regulating system”

    Well said, but quis custodet ipsos custodes?

  • Comment number 73.

    By keeping interest rates consistently, under pretext of low (narrowly measured) inflation, Governments have squeezed savings away from deposit based lending to higher risk securities based lending during the boom and Government leveraged lending now. The signal to businesses, markets and individuals is clear: money has no worth to the Government, so spend it as soon as you get it and don't worry about the future, the Government will bail you out. No wonder the stock market, given current economic fundamentals, is already looking frothy. Since Bretton-Woods and the split from Gold pegging, it is morally incumbent on Governments to maintain intrinsic value in the fiat currency, especially the Dollar. If they do not do that then we will continually see asset bubbles develop and burst as money, cheap as water, washes around looking for a safe harbour. Brown followed Greenspan into this mess as surely as Blair followed Bush into Iraq. Good, safe banks and building societies now are struggling to make their business models work as cash deposits flee 0% interest rate accounts.

  • Comment number 74.

    No. 24

    "A return to so called 'Victorian values' banking is good..."

    This reminds me of another catchy soundbite about 'old fashioned values' which is always wheeled out when governments have difficult decisions which they don't really want to face...

    I think the last instance of this kind of rhetoric was the terrible behaviour of ASBO kids/hoodies/knife crimes et al. Most of these kids have no religion and no moral structure to work from To reintroduce this is an impossible for a government to even begin...

    Same goes for banking. As a few of the bloggers on here have pointed out, the government is playing for time, hoping something will turn up but knowing, in all likelihood, that more and more devastating news will pile up.

    All they can do is tinker and bluster and hark back to 'good old fashioned/Victorian Values'

    The monumental task of tearing down capitalism, starting from scratch and building something new is very difficult to imagine. But thats what we must do... use our imaginations, our conscience and our voices to think of a new global structure to replace it.

    Perhaps we need a Messiah of some sort... I always thought Lennon might have found a way if he hadn't been eliminated...

    Anyway - GB and his cronies won't do it, nor will The Con-Servatives

    Let's give it until 22/12/12 and see who (or what) turns up!

  • Comment number 75.

    Just to correct the bizarre typography on this site:

    #20. eatingantonyo "makes sense. I'm going to put my cash in a building society."

    I already have.

    #16. IfAtFirst "Is that USB 2.0?"

    Don't be silly - it stands for Unrepentant Swindlers' Bunker.

  • Comment number 76.

    When a gambling addict runs out of luck he will pester ANYONE for more cash. He will tell ANY STORY to get his hands on the means to continue gambling. He will promise anybody anything!

    This is the situation with the banks at the moment. Their gambling (investment) arms are in denial. For them, bonuses MUST be generated somehow. Glass-Steagal would prevent them getting hold of one of the few sources of cash now available to squander: ordinary deposit accounts.

    The bailing-out of the western banks with no regulatory reform is very dangerous for everyone. If there is no reform, then they will carry-on as before only much worse, because now they know for certain that they are 'too big to fail' and that their losses will ALWAYS be made-good by taxpayers.

    Only more Lehmann style collapses can prevent them from killing again. Remember 'the dog always returns to its own vomit' unless physically prevented from doing so.

  • Comment number 77.

    Robert

    Enough about the banks. As long as they are not allowed to do something excessively stupid like take investment advice from Goldman sachs or anyother intrepid investment bank the sector is stable. These post-mortems are mere headline grabbing tactics to soothe politico egos whilst pointing a finger of blame elsewhere. Not me Guv, honest!

    The real story is this:

    http://business.timesonline.co.uk/tol/business/economics/article6204108.ece

    Bust Businesses up 56 pct amid record bankruptcies from the Times.

    Inaction to slow down this bankruptcy rate, will in the long term actually affect the health of banks all over again! Politicians and business leaders (and the Fourth estate come to that) have taken their eye off the ball. At a time like this the trading 30 day credit rule should be enforced more than ever. Your blogs have correctly identified a culture of greed in the City, but in the commercial sector greed also exists where big companies treat small creditors in a cavalier fashion. If small firms are going to the wall due to this kind of vandalism, inaction from the Business Secretary is disgraceful.

    Late last year the government 9to their credit) instructed local authorities to pay suppliers in a timely fashion. However, they ought to have gone further, to ensure that suppliers sub-contractors were also paid promptly. Has the government stopped this scheme now? There is no need for legislation, government can "lean on" individual companies all in the letter of the law, an official visit by an HMRC officer or industry regulator can have the effect of making grown men cry..

    But please can we have some relevant blogs!!!

  • Comment number 78.

    So the auditors get off Scot free? KPMG who audited the HBOS books must be breathing a sigh of relief today!

  • Comment number 79.

    Robert, please will you stop this language of "Mess" and "Errors".
    There were none.
    We were fleeced in a methodical and calculated way.

    Its that kind of language which will allow them to do it all over again, either in a few months time as some predict with a larger Derivatives collapse, or in 10-15 years.

    Hedge-Fund managers taking home $4 Billion in bonuses is no mistake.
    And you are doing us no favours calling it such.

    We need people to realise that globalisation for the majority of people means permanently lower living standards and wages. For all of us.

    And we need journalists that both understand that and are brave enough to say it.

  • Comment number 80.

    6. At 08:43am on 01 May 2009, mullecon wrote:
    "Break up our banks and there won't be a British bank left - they'll all be small enough for dicey big foreign banks to take over."

    You forgot one - a mutual bank like the Coop can't be taken over. And if HMG (i.e. we the taxpayers) are still majority owners of a bank I fail to see how that could be taken over either. As for the rest, good riddance to bad rubbish.

    Oh and lets reduce the Deposit Guarantee Scheme to a level appropriate to the third world country we will soon become, how about GBP 10,000 ?

  • Comment number 81.

    Still feel there is a serious worldwide lack of grasping the nettle in this situation.

    Over the last ten years we have earned/borrowed/spent the next ten years money. So we have to survive for ten years without any money. (Overly simplistic but you know what I mean).

    However most commentators continue to discuss freeing up credit as if the credit that was there for the last ten years was real when, in actual fact, it has been accepted that it was created by all sorts of artificial financial instruments and poor lending strategies and decisions.

    So either we 'grasp the nettle' and someone says that we have to go through some serious pain to readjust (and this is worldwide not just in UK) OR someone has to say that the practices that have gone on in the last ten years were shocking but in actual fact we're going to let them continue otherwise the world is going to go through some serious pain and we'd rather delay this as long as possible.

    The curent position of the governements stopping the banks bad lending but replacing it with government money is unsustainable IMO because the problem of the last ten years credit being wrong and an adjustment being necessary is not going to go away.

  • Comment number 82.

    ~72 no-one or possibly its all done by cleverly placing mirrorsand a bit of smoke)

  • Comment number 83.

    When you say "and you'd walk quite a distance, across continents, before you would find many who'd disagree with that verdict", is that because you know where Fred is hiding?

  • Comment number 84.

    I think a few people need to check their premises on this website before casting any stone against bankers, especially Peston.

    Lets deal with the most important one - that the banking/credit crisis occurred in a free market environment; this is what wikipedia has to say on the subject:

    "A free market is a market that is free of government intervention and regulation, besides the minimal function of maintaining the legal system and protecting property rights, and is also free of private force and fraud. In a free market, property rights are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers."

    At no point then can this system be considered a "free market" - at best it can be considered "corporatist capitalism" or "corporatism", which is why ours and many western governments were so willing to pour billions into them despite this already being borrowed from our children and grandchildren.

    Second, lets deal with the calls for more regulation, particularly in giving the FSA more powers; why on earth do you think that a group that has had billions in public money so far and yet was unable to prevent such a collapse or see the debt bubble build up? Why did Gordon Brown as Chancellor give the Bank of England, a private enterprise, powers to set interest rates at their lowest in decades which led to the inflation of the debt bubble to record levels? Why do people think that the failure here is not due more to fractional reserve banking (a system which allows you to claim you have 10 times the amount of money you actually have by virtue of the fact that you are a bank?)?, or to the monopolised concept of currency?, or a move away from the gold standard which has seen inflation in our currency leading to its overall value (not to mention Brown's sale of half our gold reserves for worthless Euro paper prior to the price of Gold going up astronomically - the Brown bottom?)

    The truth is that the only failure here is in the corruption of our markets caused by third parties (the state) which has enabled it, by no other virtue than being voted by others, to loot the wealth of a compliant traders; we could have gone down the root that would remedy the entire system by letting these banks go downhill, their resources being absorbed by better banks and best practice achieved; instead Brown and his cronies, grown fat on the good years with over 25% of the UK workforce now in the public sector and a further 10%+ in the financial sector now reliant on these businesses not going under for fear of massive shortfalls in tax receipts we find them sacrificing the productive class of today and our future, yet again, to the mouchers.

    Peston, you should (re)read Atlas Shrugged; the parallels are quite shocking - precisely which one is fiction?

  • Comment number 85.

    * 28 Guycroft

    The best portrait of these times I've read. Disgusting times we are witnessing indeed!

    Was it really inevitable that so much hard work by ordinary people had to end up in this astronomically "expensive illusion"?

    I am not in the least deceived by a single person who says that it was unavoidable. If we were talking about food being contaminated with poison, we would be prosecuting those responsible.

    Wasn't it Leonardo da Vinci's maths teacher, Luca Pacioli, the father of accounting, who said, "a person should not go to sleep at night until the debits equalled the credits"?

    It takes some pretty sharp practices to create such an illusion of wealth as we have seen in the last decade. Surely it doesn't happen without the dedication of an army of zombies and their masters!

  • Comment number 86.

    So, another great 80's policy from the Tories (i.e. demutualisation and deregulation) bites the dust. Has Cameron come out yet and said he ditches the earlier policy and intends to do the right thing now? That's what he normally does to try and convince today's voters that Tories are the real face of social justice.

    I'm not saying Gordon Brown has the answers, but let's not forget that the previous Tory Government laid a lot of the foundations for today's problems, and Tony Blair was complicit in taking them forward.

    We've been told for years that fat cats were a necessary part of capitalism. Every time the unions and the left brought the subject up we were told that the highest wages had to be paid for the highest talent. What tripe! The public are bailing out banks with our taxes, and then the banks give us the double-wammy with sky-high interest on their loans and penal fees/charges for going into the red. Win-win for the culprits, lose-lose for the rest of us.

  • Comment number 87.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 88.

    Wasn't Northern Rock a Building Society that overstretched itself, trying to compete against the banks? Building Societies are good in their business models, but they will always fall short of the banks in terms of the figures they offer.

  • Comment number 89.

    Why not use this new-found financial muscle (i've never owned any banks before!)to make life a mite easier for the state(us).By allowing folk to pay income tax in advance,at a reasonable interest rate,instead of depositing cash in retail banks,we can avoid the average punter needing a degree in economics to evaluate the security of his bank.
    Our hard pressed leader might be a bit grateful not to have to borrow from
    the pension funds(us again).And the banks might have to actually earn their pittance by offering a better deal,to compete.

  • Comment number 90.

    Well that's that then a stern rap across the knuckles (aka 100 pages) for being such bad people and bringing about the worse collapse that rampant capitalisim has ever experienced. This government needs a better bounce than this forest wasting exercise, lets have some show trials with real prison sentences at the worst places HM govt can offer. Have you seen how those at the very top are still awarding themselves huge salaries, bonus and pension rights! UK population have MUG written right across our foreheads! Perhaps we should really turn the clock back 1500 years, and get some honesty and truth!

  • Comment number 91.

    Should the banks be split into the deposit taking /lending utility types and the investment banking types? The answer is yes; let the city gamble money away if they wish to, but not the depositor money from the ordinary chap on the street- let them get it from rich investors like the hedge funds do. We do of course need to work out rules for safely liquidating lehman style banks which fail, shouldn't be too difficult with all the talent we apparently have in the banking world.

    The high street depositor banks should concentrate on what they used to do, pay interest to depositors, lend at interest to reputable borrowers and make a reasonable profit in return .Any investment portfolio should be in safe instruments such as gilts, gold, Swiss francs etc and not CDOs, CDSs and any other of the dodgy derivatives which have been made up by the cowboy capitalists.

    The Lloyd's takeover of HBOS was a joke and should have been vetoed;HBOS should have been liquidated in an orderly fashion. We now have a zombie bank, the toxic balance sheet of which the taxpayer is retrospectively underwriting - what insurer would agree in their right mind to provide policy coverage after the house has already burned down ? The answer is none at all. Also did no-one think twice about the competition consequences come the upturn? Another fine example of the legacy of Brown's Britain and the heads I win, tails I win outcome of this crisis for the bankers.

    Finally, cant see that RP has advocated this before, but what does he think about a return to old fashioned partnership banks? They would act as a credible break on the boy racer types of the financial world. There would be less dodgy mortgage lending, no walk away golden bonus to the trader who piled into too many risky derivatives and no cop out excuses for the managements who failed to understand what their staff where up to.

  • Comment number 92.

    The problem today 12 months after the real mess became apparaent is that the the banks are now making a bigger mess by their attidude, they current incumbernts of these banks have only one thought in their mind is to at the expense of the british public the taxpayer repair their balance sheets get massive bonuses which they will in 3 years get their knighthoods and retire with a big pension, but the thing is why shouldnt they, they are getting away with it, time for the british public to revolt agaginst their actions take the rbs in a dire mess they have lent the liverpool owners £350m this could be repaid tomorrow if the rbs the owners, take then a small retailer who needs £250k to keep going employing 5 of a staff what do the bank do? they stop their credit, now these two cases are only an example of how badly the banks are being run its all for self motivation, but as i said good luck to the guys who are running the banks they are getting away with this behaviour goodwin is making a laughing stock out of the british public he keeps his £700k a year and his knighthood, why would the current people do anything different?

  • Comment number 93.

    Interesting Point of view of view towards the bankers Robert,

    but who is to really to blame for all of this in the near future

    is it the bankers for their risky management practices or the FSA for not regulating them effectively and monitoring them.

    so another question that's arises is that with being government money will this have an impact on the credit value, will the regulators stop the bad lending practices in the future.


  • Comment number 94.

    Having focused mainly on what went wrong in my previous comments (you can still find them by clicking on my user-id above) let me make some constructive suggestions:

    1. If the US and the EU exercises serious pressure on tax havens and offshore banking, some if not all of the concerned governments, as well as the overseas territories of EU countries (for example the Cayman Islands, a British overseas territory), will have to enforce stricter regulation and then will have to raise taxes to ensure their own survival. This does require 'only' a determined and collaborative action by the US and the EU. An estimated 11.5 trillion US dollars are stashed away in tax havens and in offshore accounts.

    2. Such regulatory pressure by the US and the EU will in itself lead to many individuals and financial sector companies re-patriating their wealth from these tax havens and offhsore accounts. This would lead to some trillions of dollars seeking for legitimate investment opportunities in their home countries.

    3. One could even imagine an amnesty period, for the purpose of re-patriating or legalising of hidden wealth from tax havens and offshore accounts, under the condition that such hidden wealth is made visible to the tax authority where tax avoiders and tax fraudsters are resident. Let's imagine a 40 per cent tax on these hidden fortunes to 'legalise' them again. If only about half of the estimated 11.5 trillion US dollars are made 'legal' by the relevant tax authorities again (let's say some
    6 trillion US dollars), that would lead to a welcome additional 2.4 trillion US dollars income for governments of developed economies.

    This is not an impossible scenario, it just requires a political determination by maybe 10 Heads of Government (from the US and the EU). The general population of their countries would certainly applaud such action and the politicians would get re-elected. It's a win-win scenario, even for most of the fat-cats who will not end up on benefits or in jail and therefore avoids costing the tax payer even more money.

  • Comment number 95.

    Yes the bankers have made a mess but this has brought about a once in a lifetime opportunity to make money on the stock market Barclay's shares are up 500% from the low point in February all other bank shares have been drastically over sold. The lessons are you must look after yourself and not rely on so called experts and especially the over excitable media.

  • Comment number 96.

    #29 - the credit ratings agencies cannot be trusted! They are a part of this mess and are trying, now, to make themselves look the hero by making everyone else look bad. They've even now downgraded Building Societies (which, by the way, are returning to traditional models of funding mortgage lending via saver's deposits - which make credit ratings agencies obsolete in this respect).

    All they seem to do is make the customer worried.

  • Comment number 97.

    This raises fundamental questions about the relationship between the commercial banks and the Bank of England. Before 1997 Britain had a system in which the Bank of England had an understood responsibility to act as lender of last resort to the banks and to help them if they had difficulty funding their assets. That system was a success, which was copied around the world. Unfortunately, it was undermined by Gordon Browns so-called reforms at the start of his Chancellorship, leading to the worst financial crisis in this country since the South Sea Bubble.


    The Bank of England should be privately owned - as it was for more than two and a half centuries prior to 1946. Its capital should be provided by the commercial banks and it should have regulatory power over these banks in addition to providing a lender of last resort facility. These supervisory and lender-of-last-resort functions are inseparable.


    If we do not seize this opportunity to establish a sound and viable structure for British banking, we face the very real risk that we will lose a major proportion of our financial services industry to markets regulated by the European Central Bank or the Federal Reserve.

    T. Congdon

  • Comment number 98.

    Pot Calling - Kettle Here.

    Who are the Government to point fingers? It was worse than a complete lack of leadership, their policies actively encouraged it.

    Post #2 says it all for me.

  • Comment number 99.


    Is it not possible for banks to have an insurance policy against going bust; rather than tax-payer Joe Bloggs bailing them out.
    Every employee would have to pay the same percentage of the premium as their salary percentage of total payroll.

    This way each employee would pay according to the responsibility they have (and amount of pay they receive)and might stop the ludicrous amounts that some walk away with having brought the company to its knees. Bonuses subject to the same rules.

    Too simplistic?

  • Comment number 100.

    #6

    Spot on, this was eminently predicatble.

    Anyone under the age of 30 that looked at the property market could tell how ludicrous that was getting and many people just sat aside to watch as it came to an inevitable crash.

    Add to that the proliferation of self-certified (or sub-prime in the US) mortgages by the billion and you have a recipe for disaster.

    This whole situation was both predictable and predicted by a lot of people. It seems that only those that were actually participating in the reaping of unsustainable rewards couldn't see it coming.

 

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