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Why banks must be allowed to die

Robert Peston | 00:00 UK time, Friday, 26 June 2009

There's something of an Old Testament sermon at the kernel of the latest Financial Stability Report by the Bank of England.

Bank of England Financial Stability ReportWhen discussing how to reconstruct the banking system so that its periodic excesses never again propel more-or-less the whole world into recession, this is what those sobre chaps in Threadneedle Street say:

"To control risk-taking, financial institutions need to face a credible threat of closure or wind down."

Or to put it another way, the prospect of death rather focusses the mind. For most of us, it's a deterrent against taking excessive risks.

If we knew that we'd always be patched up and kept alive, no matter how much damage we wreaked on ourselves through reckless behaviour - well, we might be tempted to party just a little bit harder than is wise.

So banks too can't be expected to behave themselves unless and until they become convinced that the deal-too-far would send them to the knacker's yard, rather than landing taxpayers with an enormous bill for rescuing them.

Which implies three things:

(1) Banks must be prevented from pumping themselves up to such terrifyingly enormous dimensions as became almost commonplace. Because no government would ever willingly take the risk of allowing the precipitous demise of a bank, like Royal Bank of Scotland, the assets and liabilities of which exceed the output of the British economy by a comfortable margin. If RBS had gone bust, the UK would have been hammering on the door of the IMF for succour.

(2) No bank should be so complex that the relevant regulator can't confidently predict the impact on other financial institutions and the economy of its demise.

(3) All banks should write a contingency plan - what Mervyn King calls a "will" - that would make it easy to protect and separate the deposits of its innocent retail customers, in the event of an accident that mullered the shareholders and other creditors.

Those are the three rules for sanitising the banking system. Sounds simple enough, doesn't it?

If only it were.

The financial elite is broadly divided into three groups on all of this:

(a) there's the Treasury and the Financial Services Authority, which believe that banks can be encouraged to go on an crash diet by imposing a hefty punitive tariff - in the form of disproportionately high capital ratios - on those that remain dangerously big and complex;

(b) there's the Lib Dems, the Tories and (not quite yet) the Bank of England, which explicitly or implicitly say that banks have to be bifurcated by fiat;

(c) and then there are the grey-haired bankers, who think that chaps like me will soon tire of our tedious preoccupation with their size and structure, and they will soon again be gorging to their hearts' content.

Comments

Page 1 of 3

  • Comment number 1.

    A most unfortunate analogy...

  • Comment number 2.

    you dont need a lot of rules to manage the banks...just implement a law that the bank directors are 100% personally liable for any loss.. If i go to the bank for a loan they want my house as security....well if their every penny was on the line they may think twice about taking risks with depositors funds.....

  • Comment number 3.

    Does anybody know why Peston has completely ignored the most important story of recent days: namely, the Exocet missile that the governor of the Bank of England fired at NuLabour's reckless, scorched-earth fiscal policies? He said that not only is fiscal policy unsustainable now, but also it was unsustainable before the recession began. I would have thought that this was worthy of note by the BBCs business editor. Is it too off-message for the BBC? Safer to stick to bank regulation.

  • Comment number 4.

    Peston,
    Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average) ... before your next Chapter in The Big Book Of Banking...

  • Comment number 5.

    Agree with jolo13.
    Perhaps the financial markets should propogate risk to the same places that it propogates the rewards.
    We all know it was unconcienable that Sir Fred Goodwin took his bank to the brink of bankruptcy and walked away with such a handsome swag of cash.
    Were he required to not only stake his reputation, but also his current financial status, I believe significant caution would affect the financial markets to the ultimate interests of all of us.

  • Comment number 6.

    Regulation can easily become lax or even forgotten about over a relatively short period of time. The good times are just too enticing.

    What is needed is for a fix to be enshrined in an act of law similar to the US Glass-Steagall act of the 1930's.

    This was the only thing that prevented a depression for the last 70 years.

    It's no coincidence that its relatively recent repeal resulted in the meltdown we have just experienced.

    We must separate the plain vanilla retail banks from the casino investment banks (by law) in order to avoid the dilemma of moral hazard.

  • Comment number 7.

    this is a good piece that makes good sense.

    I will always despise the banks, because they really do hammer the poor. When I get very ill I can't manage my money. The bank doesn't help by taking 3/4 of my disablity money before I even recieve it.

    I have had to move banks and have the most basic cash card with no direct debits so that when I go through periods of being very ill, i will still be able to buy some food.

    I have no sympathy for these people (im not talking about the guy who you pay money into, but the execs). They make money by moving numbers from account to account, and taking numbers from anyone who can't manage their own affairs.

    I look forward to a future where the entire global monetry system is replaced by something of a different concept.

  • Comment number 8.

    Hear, hear! Banks must be allowed to die! And so must financial bubbles! Yet they aren't!

  • Comment number 9.

    The issues about banking don't just apply to the UK. If the UK applied regulation without regard to what other major countries are doing then banks would simply move some of their activities to other countries. Banks operate internationally and regulation will need to as well as the crisis showed the interdependence of countries in the global economy. Last year, the Tories where gloating about the critisms of the German government about the UK economy - yet the Germany economy despite its supposed "prudent" fiscal policies is in a far worse economic position than the UK. International problems require international solutions and the banking problem is no exception.

  • Comment number 10.

    "There's the Libdems, the Tories and (not quite yet) the Bank of England, which explicity or implicitly say that banks have to be bifurcated by fiat."

    I know the Lib Dems want a UK version of the old Glass Steagall Act from the US, but I haven't heard the Tories say they want this. Anyone know any more?

  • Comment number 11.

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

  • Comment number 12.

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

  • Comment number 13.

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

  • Comment number 14.

    Save the economy plan

    Government Intervention

    Lend the incompetent even more money

    Make the poor people even more poorer

    They like being screwed by us and them

  • Comment number 15.

    To understand the financial crisis you need to understand the economy, the capitalist economy.
    It is not about regulation to control individual behaviour so that the desired aggregate result (no more boom and bust) is achieved.
    Capitalism exists for profit.
    The superstructure (parliament, the courts, the Bank of England, the FSA, etc) are the political expression of the underlying economic relations.
    In otherwords, those who make the laws are capitalists.
    Any restrictions on the rate of profit get swept aside, e.g. the rush to the lowest corporation tax rate.
    It is the rate or profit and its relationship to economic growth (capital accumulation) that determines the cycle of boom and bust.
    But the current crisis looks to be more than just the cyclical crisis requiring a devaluation of capital to restore the rate of profit.
    There is also the crisis theory of the breakdown of capitalism, whereby capitalism to grow is required to loot a non-capitalist part, e.g. Chinese peasants, Amazonian rainforest, Saudi oil, etc.
    Fictitious capital, the printing of US dollars, only postpones the inevitable.
    They have been trying to postpone the inevitable since the US dollar decoupled from gold.
    Better regulation will not save capitalism.

  • Comment number 16.

    This is more like your usual clear sighted form, Robert, than that terrible blog on Liverpool Football club. First thing is to restore financial health to the banks. Second thing is to break them up and set a clear limit that none of them may have more than 10% of the national business. Then when the inevitable occurs and one of them gets into trouble, LET IT DIE. We will get no more banking trouble for the rest of this century.

  • Comment number 17.

    #9 stevenpalmer

    I would disagree with you 100% re the German economy. I work in Hamburg and do not see anything like the economic crisis we have in the UK. Yes, there are certain problems(eg Karstadt and their owners, equivalent of John Lewis, but much bigger), but Mr Prudence could have learnt a lot from Germany and others in Europe, but no he was part instigator for this mess and self-declares he will clear it up as leader of the financial world - yeah right!!!!

  • Comment number 18.

    In principle you are right, but its not going to happen is it? Rescuing RBS and HBOS has done no good, better to guarantee domestic deposits and let the rest go down. No need for the IMF unless you take private debt onto public books, which unfortunately they now have.

  • Comment number 19.

    Your three implications are very good but do not go quite far enough. Sterner measures are necessary and I have suggested them on your other blogs so I won't do so again.

    The problems come from the politicians because the bankers don't really count in this. And the politicians support the banks.

    The real opposition is in dissaray so nothing will be done. The real opposition is the people, but while some are telling us to vote for independents and others are saying we must vote for the party capable of forming a government, and yet others are calling for new parties which the two other groups wouldn't support, Labour and the Tories have the field. Unless the real opposition can unite around some principles and policies that is the way it is going to be on an ongoing basis

  • Comment number 20.

    re my comment @ #1, the comment was in relation to the original version of this blog, as published, and in the light of then breaking news.

  • Comment number 21.

    True, Banks must die. Bankruptcy has a vital role in keeping the wheels of commerce turning. It is a pity that the blindingly obvious has taken so long to sink in (literally at the midnight hour, for Robert Preston!).

    That said, small and medium depositors must be protected otherwise the crooks of finance will set up business after business with the objective of going bankrupt and defrauding depositors. Depositors has a different position to that of investors and shareholders.

    The great advantage of bankruptcy is that it lets overpriced assets back into the market at a lower price and thus returned to potential productive capacity at a proper price.

    The disadvantage of bailing out every bank is that their overpriced asset books remain stagnant and unproductive, and further the fact that their assets remain overpriced holds up the overpriced assets held by others and this depresses market activity.

    (Think - estate agents make money when they sell houses not from the 'fact' that house prices are absurdly high! etc. in other users of assets.) In the end it is the productive use of assets that matters not their price level.

    We will I think need legislative measures that stop banks being and getting too big. Perhaps only letting a single bank exist in a single nation or in not more that two or three nations. But it is tricky.

    The fact is however that there never will be global regulation and as such global banks (and other businesses?) will have to be prevented. (In that it must be said that the Anti-Globalisation protesters may be advocating a sound economic point.)

    One way ahead may perhaps an agreement to changes in the tax laws that push the market into doing the trick. E.G. make a business's global profits taxable in every country they trade if they trade in more than say 5% of the World by GDP - without double taxation relief! This would make international businesses think twice about growing too big.

  • Comment number 22.

    Isn't this a little like closing the stable door after the horse has bolted?

    The point at which banks might have collapsed (died) has, by and large, passed. We, the taxpayer, didn't let them die.

    Further, where we did let them die this is largely regarded as a failed decision, Lehman Bros, albeit that they were not technically a 'bank'.

    This is a question of regulation, or lack thereof. Without regulation the banks took the preverbial biscuit, the FSA sent a few memos and went on holiday and hey presto- the tower of cards collapsed.

    Next steps.

    1. Establish product certification procedures via the FSA, no more collateralised debt products et al without certification, and no more buck passing by the FSA in future. Any further mistakes will absolutely be on their watch.

    2. Provide the Bank of England with oversight and the ability to regulate capital ratios of all banks and lending institutions. Punitive sanctions in place for non compliance.

    This is not/should not be about stopping the banks from making money. We are now shareholders in these same banks and more importantly are paying interest on the money/debt we owe having borrowed the money to bail them out. The more they make, the less we will have to pay.

    However, profit should never be 'at any cost' and the banks have let us down. They should therefore be regulated more tightly. Talk of letting them die however is misconceived. The economic impact of such a policy would be disasterous and would send interest rates on national debt into orbit whilst simultaneously killing consumer confidence at a time when government revenue would be squeezed.

    What is currently being called a bailout will hopefully, in time be called an investment. Perhaps wishful thinking but you never know.

  • Comment number 23.

    I agree there has to be an explicit link between action/inaction and consequence. For most people, the risk of personal liability, loss of pension & bank death will moderate their behaviour at the extremes.

    However, we cannot allow banks to blow up the country/world systems when they have to die. The extreme risk takers will take us all down when they go down. These are the ones whose behaviour necessitates these regulations.

    If you're too big to fail, then you're too big for the UK. Period.

  • Comment number 24.

    It's all very well if the institution has the threat of "death", but institutions don't make decisions, people do. And while there is limited liability - that is, an unlimited upside with limited downside - bank shareholders and employees will always have an incentive to take excessive risks. If the company makes £100 billion profit, the shareholders and employees keep it; if it makes £100 billion loss, the shareholders and employees don't have to pay it - the creditors do.

    So the possibility of bank failure actually needs to be a discipline on the creditors of a bank, not its management. And to impose this discipline, creditors need to have much more transparent information about the bank than they do at present.

    This is the theme of our submission to the Walker Review which the Treasury is currently carrying out:
    http://www.knowingandmaking.com/2009/06/our-submission-to-walker-review.html

    and also a Martin Wolf article from a couple of days ago:
    http://www.ft.com/cms/s/0/095722f6-6028-11de-a09b-00144feabdc0.html

  • Comment number 25.

    When a bank is bigger than a country there has to be a problem. Countries that behave recklessly, have no democratic system, self harm and destablise are regarded with concern. Yet a bank it would seem can do all of those things and the only response in general is to provide aid. Bailing a bust business is now talked of in terms of achievement.

    The capitalist system encourages risk taking. Fair enough. The capitalist system also says if you're broke due to risks gone sour, then tough luck. Businesses that self reward staff and shareholders cannot have it both ways, capitalism on the way up and socialism on the way down, then capitalism on the way up again. Public money is limited and there are better strategic uses for it than bailing out businesses, whether or not a return or even profit to the public purse in due course occurs.

  • Comment number 26.

    The stupid government allowed the banks to gorge themselves so that they could gorge in their turn on the taxes generated. That is the history of the British economy between 1997 and 2007. Then excess caused the wheel to fall off the bandwaggon and eventually the taxpayer was forced to step up to the plate and bail out the lot.

    We are now a long way down the road from then but what has happened to prevent a repeat performance? Not a lot.

    As a matter of critical urgency we need to divide retail banking from the funny stuff. This is so blindingly obvious I cannot understand why it has not been done already.

    There also needs to be a period of austerity in the CIty. If I were the Chancellor I would be encouraging investment - real investment in value creation in the UK not the wet-the-wall-on-a-Friday night type of investment so beloved of this government - whilst whacking a great big tax on the big profits and big bonuses. If the City squeals then they will just be told they are paying for the folly of their own class so they should sort themselves out. The tax will remain, even selectively if necessary, until there is a sign of the old boring professionaliam returning amongst bankers.

    The prospect of a hanging will always concentrate the mind and as all the greed of the Blair-Brown period becomes apparent the public are in a hanging mood.

  • Comment number 27.

    If Goodwin et al can walk away from their monumental disasters either with a fist full of dollars and/or into another overpaid job where's is the risk? Where is the disincentive to wreek havoc on the economy and ruin so many lives of ordinary customers and employees? The state and the law must have a role here.

  • Comment number 28.

    4 ComradePeps

    ''Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average)''

    Irrelevent. Taxes are always with us.

    Insufficient income to justify a 24 Billion GBP hole. Man in any recognisable form has not even existed for 24 Billion years. Thats how big the number is. The Jurrassic period was 144 Million years ago. All sounds better if you call it 24 somethings that people find difficulty in scaling.

  • Comment number 29.

    Should be allowed to die ? The banks know the score, and they always have.

    They choose to play on regardless, confident that politicians who don't know, will pick up the pieces. With Brown at the helm, who's to say they are wrong ?

  • Comment number 30.

    Friedman and Hajek fundamentals. When you read them first time you also wonder how on earth that could be practice with today's banks, their size and widespread activities. More suited for the Wild West era. True, the banks should become smaller, more transparant and less divers. Consumers should be taught to divide their capital to more accounts. A guarantee that 30000 will be save per account but no guarantee that the bank will be saved. A body that ensures this, controlled by the national bank or on EU level. No bank license without joining that body and contributing to its reserves. A Rhineland version of the fundamentals.

  • Comment number 31.

    Retail banks to remain purely retail and investment banks to remain gamblers. Fair enough. Explain that the investment banks can go under but retail banks will have deposits guarenteed.
    Problem is getting the off-balance sheet rubbish sorted. IF ONLY WE KNEW HOW BIG THE PILE IS. ANYONE LOOKED INTO THIS SINCE THE CRISIS STARTED NEARLY 2 YEARS AGO? Robert?

  • Comment number 32.

    Surely this isn't too difficult? - All good ideas but any bank applying for Government support should know that as a condition the shareholders funds will be forfeit, the directors and senior managers will have to resign and waive their compensation, be banned from working in a regulated business for 10 years and that their business will be broken up and the proceeds divided between the Government and the senior debt holders.

    If Banks and bankers understand fully the downside to any recklessness is "transparent" and personal you can be sure their behaviour will be moderated. Then if we the taxpayer have to pick up the mess we'll know that at least there was a penalty for failure

  • Comment number 33.

    Everyone knows what is up with the banks. In one word - Greed.

    More specifically, the need to get rich quick and to show to shareholders that they can get rich quick too.

    That feeds basic corporate strategies which are
    a) unhealthy for the National / European / Global economies,
    b) unhealthy for the longer term stability of the companies (by company, I mean it in its literal sense, ALL the people involved with the enterprise, staff, managers, investors, customers,) and
    c) damages the social security of those involved with the bank, through the damage of unprepared for 'bust' cycles.

    In a nutshell, it's that Anglo American, Harvard Business School way of doing things - it's 'gun-ho' commerce, 'flatten the opposition', 'who cares about some people getting hurt?' (As long as its not me!)

    Until we legislate and regulate against that very damaging way of doing things, greedy fools will keep going around and around the cycle driven by what is, in effect, their gambling addiction. They - because they are oh so 'smart' that they need to be paid fortunes in pay and bonus deals - will be wise enough to back out of the dodgy deal in time.

    Of course, we know many of them just won't be that prudent or wise and don't know when to back out. We've seen what happens when these arrogant, egotistical fools can't have the humility to admit they got it wrong and walk away from a gamble.

    And many grey-haired bankers should humbly remember that if various governments around the world had not significantly bailed their industry out they would probably by now be grey-haired supermarket workers, or grey-haired street sweepers, if employed at all.

    There is the old adage that 'the only thing history teaches us it that history teaches us nothing'.

    And the phenomenon that we have recently experienced is no new thing at all. It's just a variation upon a theme of Emile Zola's book L'Argent written in 1891, which though fiction, details the psychology of the situation candidly.

    No grey-haired banker is going to vote for greater regulation of the system, any more than the punters in the local betting shop would vote for greater restrictions on what they do. Right or wrong, good or bad, gambling with money (usually other people's) IS what bankers do.

    The problem is the difference between prudent corporate risk management strategies and what is, in actual fact, the buzz of the gamble.

    Now, dear Regulators, go and work out how to separate out the two things, before these financial fools, despite their alleged expertise, bankrupt the entire human race once and for all.

  • Comment number 34.

    Rather than let them die, why not "encourage" them to be socially responsible. The growth in sales culture has led to bad advice for customers and has been the cause of great stress and pressure for staff. The banks are huge with vast value, but they only focus on shareholder value. We could set up a new tax arrangement for them, based on what their wider contribution to society is. This would be the return for the knowledge that they won't go bust.

  • Comment number 35.

    #9 steven palmer

    German deficit to 2013 4-6%
    British deficit to 2013 10-12%

    No one should gloat but the facts are facts.

  • Comment number 36.

    Who lends his money without usury and does not accept a bribe against the innocent. He who does these things will never be shaken. Psalms 15:5

    No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money. Matthew 6:24

    The rich ruleth over the poor, and the borrower is servant to the lender.
    Proverbs 22:7

  • Comment number 37.

    #26 couldnt have put it better myself. You sir or madam have it precisely laid out! Now where do I put that cross to make you the next chancellor?

  • Comment number 38.

    Robert, it won't work. UK and USA have already been bought with money.

    Banks may be more tightly regulated, but individuals can still happily risk the banks for good personal gains, and get away with it. It is not just in banking and finance. Everywhere and everything where somebody think they can get away with gains at other people's expenses and risks.

    A more effective way is to make risks and the subsequences personal and proportional to gains, in depth, breadth and duration, regardless of race, religion, location and nationality.

    This event is inviting global dictatorship. Perhap that is the hidden agenda.

  • Comment number 39.


    I'm with #s 2, 25, 26 and 27.

    If bank directors had to lay all of their own assets, including future pensions, on the line, then maybe we would see some of this supposed "real" talent emerging.

    Why am I still expected to continue to teach children to admit mistakes, face reality and correct their behaviour, be honest, take responsibility for their actions when so many "talented" adults and politicians do the exact opposite.... Or should I just relax the rules and have a free for all?

  • Comment number 40.

    Apart from strong regulation, I still see the absolute necessity to BREAK THESE BANKS UP INTO SMALLER PARTS.
    Given that banking can sometimes be risky, to have one single unit that is twice the size of UK gdp is crazy (as we are all finding out).
    All these huge banks should split into their High-Street current and savings retail sections (the bit we WILL guarantee), and all else.... overseas, investments, buy-to-let, business etc must be seperated into different companies that will be bankrupted if they fail.
    British banks are too big for this economy and population to guarantee.
    "But allowing any British banks to go bankrupt will damage the UK financial reputation"....hard luck, we now need to live in the real world.
    Bailing out buy-to-let losses is particularily infuriating to me as the taxpayer is clearly SUBSIDISING PROPERTY SPECULATION. We wouldn't have got the profits, would we?
    BREAK THEM UP, AND STOP MOLLY-CODDLING THEM.

  • Comment number 41.

    "... make it easy to protect and separate the deposits of its innocent retail customers, in the event of an accident that mullered the shareholders and other creditors.". This seems to be a key point, though I don't think it should be just a contingency plan.

    Would it not be possible to legislate that no other creditor of a bank can have a higher claim on the bank's assets than retail depostors? In other words if banks raise additional funds from wholesale money markets, they should not be allowed to use their assets as collateral for such loans. Wholesale loans should in effect be unsecured in the same way as retail deposits. It would make them more expensive of course, but perhaps that would make such a souurce of funding less attractive and encourage the banks to seek a greater source of funding from retail deposits (which I think would be a good thing).

    I think such legislation would also put a stop to a lot of the off-balance sheet nonsense.

  • Comment number 42.

    Bearing in mind the huge rewards that are on offer for Bankers the risks they face are very small. Look at Goodwin how he is being made to suffer, bust the business and still gets a huge pension. Ex CEO of HBOS Andy Hornby linked with becoming CEO of Boots. Once upon a time the reason given for huge salaries in business was the personal risk taken by top executives. I would have loved the risk that meant if I failed I got a huge pay off, its even worse now than when 2 year rolling contracts were all the rage. If a gambler loses all of his money in Ladbrokes, they don't give him his stake back and tell him not to appear again. It is impossible to believe that depositors in any bank should lose their hard earned money but it is also right that those executives responsible lose the rewards they took, often against shaky targets. Finally lets get back to a basic understanding of what banking is about, they don't sell "products" they deal with peoples hard earned assets, the "retail" culture for banking should disappear completely, it is too fundemental to peoples lives.

  • Comment number 43.

    The banks are dead, but kept on life support, so their good parts can be appropriated by the criminals that run the show.

  • Comment number 44.

    #3 PRF101
    Agree.
    Ignored by Robert but covered by the political editor, Nick Robinson's "Mervyns done it again " Newslog
    Post 38 by arr-jay on that blog is worth reading and made me think were stuck in this mess for the long term.

  • Comment number 45.

    15, "They have been trying to postpone the inevitable "

    What is inevitable ?

  • Comment number 46.

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

  • Comment number 47.

    Bifurcated by fiat, eh? Is that before or after they've been castigated and ostracised?.
    And a banker in a fiat-surely not!

  • Comment number 48.

    And in a worrying development, a BBC report has shown that American Cities are starting to sue banks in relation to sub-prime losses.
    That will possibly lengthen and deepen the crisis.

  • Comment number 49.

    17. At 07:52am on 26 Jun 2009, tone1947 I would disagree with you 100% re the German economy. I work in Hamburg and do not see anything like the economic crisis we have in the UK.


    The last time I looked Germany's unemployment rate was 7.9% against UK rate of 7.2% .Well done Hamburg for avoiding the recession ,obviously it must be OTHER parts of Germany who having a bad time.

  • Comment number 50.

    #44 Moorlandwoman

    Hear, Hear

    In his necessarily sotto voce, Mervyn King made it absolutely clear to the committee.

    I don't think the thrust and implications of the story is lost on fellow bloggers.

  • Comment number 51.

    #39. nottoonear wrote:

    'Why am I still expected to continue to teach children to admit mistakes, face reality and correct their behaviour, be honest, take responsibility for their actions when so many "talented" adults and politicians do the exact opposite....'

    Because, to make their power and wealth, those otherwise are dependent on the rest of us to work hard, to be honest, to take responsibilities, to be content, to be weak and unquestioning and to swallow lies and spins.


    Robert, Old Testament? How about the book of Obadiah and Proverb 16:18

    "Pride goes before destruction, a haughty spirit before a fall" ?

  • Comment number 52.

    "bifurcated by fiat", surely this is wrong. Bifurcating implies splitting into two equal parts as in a bi-fork i.e. fork with two equal prongs.

    The principle behind splitting the banks in retail and investment components, their relative size is of no importance.

    Brown, Darling and Turner have bought into the argument that the banks have put forward that the big beasts will go offshore to Dubai or similar exotic location. Would this be a bad thing? Dubai (with the support of the rest of the Emirates) could afford to bail out a global bank to two, the next time they go broke (about 2025?)

  • Comment number 53.

    Surely if our currency was (once more) backed by gold, this would make it much more difficult for the banks to get out of control.

  • Comment number 54.

    We need a new prime minister. One who will

    "Bring an end to boom and bust"

    Anyone have any ideas!?

  • Comment number 55.

    Robert Peston is right. Like any other business that fails, banks should be allowed to die. However, to protect shareholders and investors, banks should have a collective mutual insurance scheme against going bust. In the case of Northern Rock, for example, the rest of the banking/insurance industry would have protected investors - not the general taxpayer or government. In view of the size of the debts incurred when a bank fails, this would involve the international banking/insurance community as a whole. Part of the huge profits from banks would be used to build up the fund - rather than provide top management with astronomically high rewards for failure!

  • Comment number 56.

    #49 hughesz

    Statistics are a snapshot.

    German unemployment is measured differently to British unemployment.

    The British figures only count 'unemployed' as those receiving contribution or income based for six months. The Germans for two or three years.

    British unemployment is 'hidden' in the statistics and has been for years. A receiver of unemployment benefit is no longer counted after six months because he/she goes off the definition.

    The rate of increase is also important. That can't be hidden by methodology. That is were the collapse is to be measured.

  • Comment number 57.

    Having worked for many banks over 30 years it is distressing seeing the excesses over the last decade. There has always been the 'old boys' network - you know - it's not what you know but who you know. In the old days this saw the over promotion of individuals till they rose to levels beyond their competence. Now we have the spectre of individuals starting their banking careers at Chief Executive or Director level. This coupled with greed and a devil may care attitude adds to their ignorance and has contributed greatly to the crisis.

    Our regulators are equally culpable. Where have the principles of collective board fresponsibility gone ? How can we have a system (Basel2) that allows banks to come up with their own ratings strategy (IRB or AIRB) and stress testing (but only using historic data - i.e. that has never happened to us - so it won't ever ?). The much vaulted VaR system using fat and swan tails has also failed. It is all well and good comstructing risk models that work for 95% of the time but the sub prime crisis was the 5% and it's losses were astronomic.

    Talking of which, why has no-one questioned why bankers were allowed to dilute their balance sheet to such an expend on risky lending (the sub prime was caused by irresponsible banks lending to individuals who were unable to get credit elsewhere).

    I am not advocating going back to the Captain Mainwaring style of bank manager but in my day you needed to qualify to progress and there were safeguards and controls to lending and dealing. We need to get back to realistic and responsible banks run by individuals who consider their job as a vocation not a means of getting exhorbitant 'golden hello's', obscene bonuses and equally outrageous pensions.

    Robert Peston is right - there whould be no rewards for failure - executives must be made personally accountable - that is the only way they can begin to justify their high levels of compensation.

  • Comment number 58.

    Well some say the green shoots are now appearing, but it seems to me that nothing has changed. Bankers are set to make vast profits at the expense of innocent people, politicians have not been punished for defrauding the taxpayer in the expenses debacle, savers are footing the bill for buy to let mortgages (i.e. property speculation) and for the purchase of brand new cars on the never never.

    It all adds up to an UNJUST SOCIETY and it will end with riots on the street when people realise that the green shoots are actually weeds and all the fairy money which has been injected into the economy is actually a systemic poison and not the fertiliser people believe it to be. I am so angry that I look forward to the time when reality kicks in, however much this will harm me personally.

  • Comment number 59.

    3. At 00:31am on 26 Jun 2009, PRF101 wrote:
    Does anybody know why Peston has completely ignored the most important story of recent days: namely, the Exocet missile that the governor of the Bank of England fired at NuLabour's.

    I agree with above.The treasuries figures from the budget are looking terrible against April and May actual figures .If growth does not return as Darlings prediction ,we could be 50 to 100 billion above the budget defiecet figure of 150 billion.This is a massive number and will have far reaching implications to all future public expenditure including education and health.I hope the BBC are going to do a Q1 report for next months (June)figures .The general public have a right to know their fate...

  • Comment number 60.

    The only way out of the s---- that we are in is to increase or manufacturing base money can only be made be working manually we have proved that the vast sums earned in the financial sector were only paper pounds which blew away quicker that they were gained and the working man/woman is now paying for the greed of the banklords for the goverment and the financial services to expect the country to recover without investment in manufactoring is pie in the sky

  • Comment number 61.

    While considering a meaningful contribution to this thread I spotted a spelling error in the article at the top. "Sober" is spelt sober, not sobre. If someone else has drawn this to your attention and I failed to spot their correction, I apologise.
    Back to the head scratching...

  • Comment number 62.

    #2 jolo13

    Absolutly right.

    However, there are rules which say that a directors first prioity is to
    the shareholders so I am amazed that shareholders of companies like Northern Rock havnt formed a group and taken a class action type case against the Directors for personal liabilty ? Anyone know why that hasnt happened ? The ex directors are still enjoying their super rich lifestyle whilst millions of shareholders have lost their shirts ? ( I was not a shareholder of any of the banks including Northern Rock) Just staggered that they have got away scot free.



  • Comment number 63.

    Surely if the country is going to pick up the tab every time these gamblers get it wrong,then the banks are effectively a nationalised industry.

    Banks MUST be allowed to fail and investors in them Must lose money when they do,its harsh but that is the only way the directors will ever become accountable and stop burying risk.

    The bank of England has a role to play in this,they should set out a clear set of rules for accounting that all Banks should follow.A set of rules that will give a realistic evaluation of a companies position and a bottom line figure that states what the tax payer would be asked to pay if the company folded tomorrow.And also a clear set of punishments for directors who allow their company to break the rules.

  • Comment number 64.

    34. At 09:23am on 26 Jun 2009, GreenhillOwl wrote:


    "Rather than let them die, why not "encourage" them to be socially responsible."



    I suspect many grey-haired bankers in the City would find that more painful than straight death!

    Old habits die hard. Old Dogs / New Tricks etc.

  • Comment number 65.

    The main banking/financial story is the nigh on unprecedented criticism of government policy by the governor of the Bank of England

    He stated in essence that the budget deficit was almost unsustainable BEFORE the credit crunch and that drastic action must now be taken to bring spending under control with the deficit reaching £200b+ this year

    Why hasnt Peston even mentioned this

  • Comment number 66.

    42. At 09:48am on 26 Jun 2009, notfooledsteve wrote:


    "Bearing in mind the huge rewards that are on offer for Bankers the risks they face are very small."

    Now that IS a real problem which could be overcome by major shareholders of big companies.

    If a new CEO, or other executive Board Member, had to put up a bond of a big wad of his/her own dosh, prior to taking the post, to get access to the job's perfromance-related big rewards .... well that WOULD be an advance and that would change the cutlure of the UK business world quite quickly.

    And let me make one point here, I take no issue with those who are Sole Directors of their companies - i.e. it's their own dosh their protecting or risking.

  • Comment number 67.

    One last thought - if banks were allowed to die, then many other 'quick buck' speculators would be a great deal more prudent with risk managing their money and assets, e.g. property developers and other entrepreneurs.

    We've become to believe the mantra, 'safe as having it in the bank' to our own peril.

  • Comment number 68.

    To me the response to the headline of this piece should be "Probably, but not yet". Now I accept - just - that with everything crashing down around our ears there was probably no real alternative than to prop up the miscreant banks with taxpayers' money, but to allow banks to fail *now* would mean our money going with them.
    As yet there has been a lot of talk about regulatory reform but I cannot see any evidence that anything has actually changed yet. (Please correct me if I'm wrong.) To paraphrase an epithet that I have seen elsewhere; you are either regulating or you are not; "talking about" is a subset of not.
    I wonder if there are people with the right knowledge in the right places with the motivation to actually propose and enforce any change to the banking system. On present showing I would conclude that there aren't.
    Until government accepts that it cannot meaningfully regulate without reducing the money it takes in taxes from both the institutions and processes of banking and the people who work in the business there can be little hope of a regulatory framework that will protect the rest of us. Equally of course the government is addicted to the money it gets every time we go out and spend money, or what little of it we have left. With manufacturing industry declining the government's options for getting hold of cash are becoming more and more limited.
    Regulation has to start with the government weaning itself off spendthrift habits, and I see little sign of that happening either, or that there is any real likelihood of it happening.

  • Comment number 69.

    This is really very encouraging talk from Meryvn and the BoE.

    They are showing initial signs indeed of truly representing the interests of ALL the people of the UK, and not just the cosy cartel of bankers and money lenders in the City of London and all those politicians who have sold their souls to this group in the miserable belief that the only thing Britain can be good at is "financial services".

    Our present government clearly has not a clue what to do, but as a fall back position appears to wish to continue with the status quo, which is to deliver us - the majority of people in the UK - into the hands of bankers, as the price our nation has to pay for being a so-called "global financial centre".

    I hope Meryvn and co do not lose heart here, and indeed do come forward with some strong detailed proposals that back these ideas up. The Labour government, like so many sheep, will surely end up adopting them.

  • Comment number 70.

    Well, as JK Galbraith pointed out, no matter what they do or have done for good or for ill, they always come out the winners.

    The trick is to keep the destructive potential of the banks under control. The old steam engines had the regulator to stop the power shaking the machine to bits. The banks need to be regulated and put in their place. ie the engine needs to be max speed throttled.

    The deregulation mania of the Clinton, Bush, Blair, Brown years will be the classic lesson for the next couple of decades in the same way that 1929-33 informed a whole generation. With the passing of that generation, the lessons were unlearned. The result will be plain to see over the next decade.

    Of course, Mervyn King is right.

  • Comment number 71.

    Don't you think your posing a different point altogether? Banks must not get too big?

    Banks shouldn't be privately owned in the first place! How on earth can we call ourselves a democrasy when all we do is vote in a government for how well it reacts to what is dictated to it by banks and big business?

    Do you remember voting in the leadership for the bank of england? I sure don't. Do you remember voting for whether we wanted globalisation or not? I don't remember that either.

    Banks by their very nature can't be allowed to go bust therefore they should by owned and run by the government otherwise it is an oligarchical dictatorship.

  • Comment number 72.

    #17

    The difference between the UK and Germany is that when this mess is finally over Germany will still have Siemens, Porsche, VW and a host of other industrially important companies whereas the UK will have a bunch of weak banks but some wealthy individuals.

  • Comment number 73.

    Robert,

    You ellude to the same point I made a couple of days ago (or rather the bank of England did) with this statement.
    "To control risk-taking, financial institutions need to face a credible threat of closure or wind down."

    Now this is basicaly an admission that the Capitalists argument of justifying profit - in contradiciton to the surplus value theory (I took a risk - therefore I deserve a reward) has disappeared from these large banks (and in fact any large company). When you're playing poker and you already have all the picture cards you can make huge bets (wiping out the opposition) because the risk of loosing is so small - and any losses are insignificant to the number of chips you hold.

    The Risk v Reward model works on a small scale, a small businessman does risk a lot when putting his own house up for collateral against his business - however this has all but gone for the multinationals. In fact recessions like this merely increase their power and reduce their risk further as the competition fall by the wayside.
    They also have the power (as BA has shown) to force the workers to take reduced pay (or offer redundancy as an option). A small business couldn't do this as if only a few staff walked out he would be in real trouble - however the risk for a large company is tiny that enough of the workforce would quit to make a difference.

    It sounds to me as the BoE is talking about creating a 'risk' of being shutdown in order to compensate for this absence of it in the free market - it will be unnatural and will be open to abuse (which banks get shut down, why, what's the criteria, who decides, one mans risky business is another mans clever strategy)

    So how many times will this system show itself to be inadequate before we give up on it? The free market has become like Darth Vader - more machine than man these days - with regulations and rules replacing the original theories which have been proven not to work.

    Would you still persevere with your car if it needed a new engine, doors, windows, exhaust, tyres and fuel tank? Of course not - you would srap it and start again.

    Sadly the masters at the control of our Economic system are not so flushed with common sense and continue to patch up this flagging system as they lack the creativity and selflessness to even begin looking at alternatives.

  • Comment number 74.

    Robert (or anybody)
    Please indulge the only non-expert on here and justify the connection between a hypothetical bust of RBS and the spectre of the UK hammering on the IMF's door for succour.
    RBS was a private organisation. Retail deposits to a reasonable level were already guaranteed by the government. Normally if a private organisation goes bust the receivers move in, liquidate any remaining assets, pay off creditors at an agreed rate and everybody buys the commodity or service elsewhere.
    Yes, I understand that RBS was a big outfit - an economy (of sorts) in itself. Yes, I understand that the failure of a major bank might undermine the UK's position as a major purveyor of invisible financial shenanigans, although many of these have subsequently been demonstrated as wind and wee-wee. Yes, I understand "confidence" in UK plc might be "shaken" and that this might lead to exchange rate fluctuations, though these may benefit us as well as penalise us.
    However I still don't see why the demise of RBS or any other FTSE 100 company would necessarily have put UK plc in the poorhouse and begging to the IMF?
    Anybody??

  • Comment number 75.

    Dear Robert

    I know you can't respond to individual postings, but would it be possible at some point to do a piece with a bit of detail on how you a) decide which banks are 'too big' and b) how you cut 'high-risk' and 'low-risk' apart? - I think Turner made a pretty good argument as to the flaws in that idea.

    It seems to me that wrt a) when do you kick the super high ratios in? Easy enough if you just do it on the total assets, but that doesn't capture the interlinked nature of banks.

    Lehman only had $639bn of assets when it filed for Ch.11: from what I understand the real problem was that Lehman was counterparty to an enourmous amount of the hedging contracts that OFCs take out to limit their risk. When Lehman went kaput all these contracts unravelled, forcing everyone to liquidate positions to meet risk constraints. Cue cascade effect.

    I understand that clearing houses are meant to provide something of a solution to this. But will this capture all the OTCs? Will banks find new ways of producing OTCs? Can regulators adequately predict which banks will cause cascades? After all, you may let a small bank go to the wall, but it may happen to wipe out a few hedgies - who liquidate positions in x, which finishes off the balance sheet of another small bank which...

    I know its not really news, more analysis, but could you say something about whether you think these problems will actually be addressed?

  • Comment number 76.


    #51 puzzling

    Thanks - I don't teach weak, unquestioning, lie and spin swallowing. Should we vote for whosoever will bring back personal responsibilty and straight talk into public, professional and private life? If so which politician is offering this? If we don't have those basics, the rest is meaningless.

    I agree with your post # 38 and # 58 economaniac.

    It is utterly pathetic and words are just becoming ever more meaningless.

  • Comment number 77.

    Try again -

    It isn't 'banks' that are the problem - IT'S BANKERS. After all that has happened bankers still appear to believe they can misrepresent and bluff their way out of any blame and then carry on as if nothing has happened. And everything they have done remains a big secret that stays within their own luxurious walls and that of the regulators.

    How can anything ever get mended if no one is allowed to know how it was broken in the first place?

    Has anyone of the banking illuminati suffered as a consequence of the economic catastrophe they instigated? - and I hope some banking spin doctor doesn't post the usual "it wasn't the bankers fault, it was all to do with sub-prime, complicated financial instruments and triple rated SPV's", in reply to this post - because we're tired of that response.

    Let's face it, this is fundamentally about a handful of people who were given unregulated power by marshmallow Government to plunder entire economies for their own benefit - and not one of them has been brought to book. Consequently, the same greed and lack of integrity that caused this mess (integrity being the first requirement in the FSA Principles) is being allowed to proliferate a dire situation. And they are doing it blatantly (see; http://www.ianfraser.org/?p=856 )

    Definitely time to regulate the bankers - and, if the financial regulators are a bit uncomfortable with that idea, perhaps the police could help.

  • Comment number 78.

    #66 Sutara

    That's it in a nutshell.....moral hazard.

    The absence of a real penalty for failure (incompetence, bad decisions et al.) is a recipe for disaster as the founding fathers of insurance knew only too well. If your house, job, pension is on the line, ie. you have a real stake in the success of your business, upside as well as downside, you have a meaningful incentive to keep your house in order.

    If you or I screw up that is a tragedy for me and my employees. When the banks do similar, the fall-out takes out the thrifty, hard working, well run business and it seems that no one is responsible. Of course, there is collective responsibilty but no individual will ever pay the price for the recklessness of the banks, regulators.

    The sad (and galling) fact is that we will pay the price.

    The prime duty of government is to set the rules in such a fashion that the banks (and others in finance) are prevented from conducting themselves in a manner which can destroy the economic and social well-being of millions of citizens.

    Socialism is nonsense. Do without that ideological micro-management, thanks very much. They are not much good at it anyway.

    Freedom needs rules because with rights come responsibilities. If a sense of responsibility is absent, it must be enforced.

    Mervyn King knows that.

  • Comment number 79.

    I think the first question that must be answered is "Are banks too big to fail?"

    Recent events have taught us - YES. If NR had been allowed to go bust and the public lost money, there isn't anyone in the country who wouldn't have been outside their own bank the next day withdrawing the lot making the situation worse.

    If that's established then the next logical step must be that banks must be publicly owned. You cannot have something that is too big to fail, in an arena which allows failure. The rules of ocmpetition only work when there is a risk of failure attached.

    Once you have applied that logic and all the banking is in Government (or rather public) hands - then we look at other things deemed too big to fail
    Transport
    Health care
    Utilities
    Security (National and international)
    Fuel supply
    Medical supplies

    Some of the above are publicly owned, but some have been privatised in the last 30 years.
    If we deem the banking system too big to fail for the chaos it would cause then it must logically follow that our utilities are too big to fail.
    I'm sure there would be as much anger if a large water company went bust, or a electricity supplier leaving thousands in the dark or without water - and yet the Government is happy to take this risk.....for now.

    It would only take a few months of price volatility in the energy markets and we could see some of the big companies running short of cash and becoming insolvent. At that point they only have 2 choices - Government bailout or holding consumers to ransom.

    Either way YOU PAY.

    If you're going to have a system based on rules then they must be clear and straight and applicable to all. Concentrating heavily on the banking rules solely simply pushes the problem elsewhere next time.

    It's all fairly simple really, the complication comes when people include their own interests in the analysis and that's when it all become skewed and not fit for purpose.

  • Comment number 80.

    61. At 10:29am on 26 Jun 2009, Radiowonk wrote:
    Re Bob's spelling error.... "Sober" is spelt sober, not sobre".

    Actually I reckon it was meant to be "sombre". Sober bankers? Before noon maybe, after that I doubt it....

  • Comment number 81.

    The suggestion that banks should be allowed to die focuses too much on the risk factor of the banks.

    The writer of this blog seems to completely ignore a very important factor... jobs.

    If a bank dies, a large number of people will become unemployed, leading to them having low (if any) disposable income, potentially get their houses repossed, and over time we'll be back here in a recession.

    Yes, banks should have tighter restrictions placed on lending, but allowing them to die is extremely counter-productive.

    Also, even with a "will", not all innocent savers will get all of their money back. Savings are a low return, but safe investment, let's keep it that way.

  • Comment number 82.

    At 00:46am on 26 Jun 2009, ComradePeps wrote:
    Peston,
    Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average) ... before your next Chapter in The Big Book Of Banking...


    Hmmm,, right. So where EXACTLY did the money come from to pay those taxes ? My pension, my credit card bills, my loans, my investments, my low interest bank account, my insurance, my bank charges, my foriegn exchange, my bills hyped by corporate finance and commodity market plays by hedge funds on PETROL and DIESEL - all made possible via Banks.

    What about the employee benefits of low mortgages and loans ?

    Add in the tax avoidance schemes like CDS's and CDO's (What caused the banking crisis) as well as offshore banking.

    Then add in the tax payer bail out.

    Banks are a leeches on this country that have done nothing but destroy industry and saddle the public with debt - they are self serving, corrupt and useless.

    Before you make comments about Bank earnings consider who EXACTLY is footing the bills.

    On top of this consider that even those that save and avoid such bills are now tied in because of government corrupt incompetence - I am so, so ANGRY with Banks and Labour.

  • Comment number 83.

    The MPC were given the job of controlling the money supply to keep inflation on target using only one club, the base rate.

    In the recent credit driven boom, the biggest contribution to the money supply, which became excessive, was bank lending. The control of lending by interest rates proved ineffective because high interest rates, which were supposed to control borrowing, were not used enough, or too late, because of their side effects on the manufacturing sector of the economy.

    The MPC, or whatever their successor might be, must be given another club, which allows them to more directly control bank lending. The power to order variations in the capital to total lending ratio, in return for state underwriting of depositors' funds, is one possibility.

  • Comment number 84.

    Robert

    Well well well, Yet another banking story. Do you really believe there is nothing else to discuss in the business world. This blog is becoming a joke.

  • Comment number 85.

    #45

    The capitalists always try to postpone the inevitable devaluation of capital.
    That is the attraction of Keynesian economic policy and hence the recent flood of money thrown at the City.
    But even with this attempt the latest estimate is a 15 trillion dollar cost.
    No small amount.
    But given the size of estimated fictitious capital (as a result of the US being able to print as much money as it wants as well as the credit system in general) this looks like being no where near enough to restore the rate of profit, even if they temporarily delude themselves.

  • Comment number 86.

    "Banks should be allowed to die"

    From reading today's headlines and seeing that there is finally an admissions from the BoE that we are merely coming to the end of the banking crisis (and therefore the recession is just beginning) - maybe the question should be.

    "Should we kill the banks"

    Why draw out the inevitable? Lets be humane and put them out of their misery and get on with dealing with the misery they have just bestowed upon us.

  • Comment number 87.

    Re: 4. At 00:46am on 26 Jun 2009, ComradePeps wrote:
    Peston,
    Find out how much Corp Tax RBS paid over the past 10 years to UK Govt add that to the income tax paid by the c80,000 UK employees (average) ... before your next Chapter in The Big Book Of Banking...

    I am not sure how much RBS actually paid, however what we do know is that they avoided paying at least 500 million quid..From the Guarniad of 13/3/09 -

    'Royal Bank of Scotland tied up at least £25bn in complex international tax-avoidance schemes during its boom years, costing the British and US treasuries more than £500m in lost revenue, the Guardian can disclose.

    It is the first time that a major bank has admitted the existence of such deals on this scale. The new management at RBS, mindful of the fact that it is now 70% owned by the taxpayer, has disbanded the department responsible and will put an end to the controversial practice.

    "The idea that we could take support from the Treasury with one hand and somehow pick their pocket with the other would be wrong on every level. We have always sought to avoid this sort of stance and thats more important now than ever. Its not a sustainable way to do business," said an RBS source'.

    It appears from the tone of your post that you believe these wonderful institutions and individuals are quite willing to pay exactly the level of tax that their earnings would suggest they pay..How naive can you get?



  • Comment number 88.


    # 79 writingsonthewall

    Yes, indeed. Executives of Network Rail are to be paid bonuses for increasing debt, declining profits and not meeting their objectives...

    I await further information from BBC News.

  • Comment number 89.

    The only reason we are in such a deep recession now, is that the US Government allowed Lehman Bros to die. This cannot be allowed to happen anywhere else in the Western world ever again. End of Story

  • Comment number 90.

    #21 What you have said about bankruptcy makes sense !! Howerer, this statement - "We will I think need legislative measures that stop banks being and getting too big. Perhaps only letting a single bank exist in a single nation or in not more that two or three nations. But it is tricky."

    - can be challenged by the fact that HSBC *IS* a large international bank that has neither needed nor wanted any help from this hopeless government. Barclays needed a bit of help from the Middle Easterners but they, too, are doing nicely, thank you !! Lloyds TSB would have been fine and dandy if it had not been dragooned by Comical Ali and gang into "merging" with that dead duck, HBOS !! As for RBS and its "mind-boggling reward for failure" crowd, the less said the better !!

    Northern Sponge and its ilk would have done better to take up a bookmaker's license than a banking license !! It's what they've been playing at all this time !!

    Things are not that much better on the other side of the pond either !! Bear Sterns, Lehman Brothers, AIG, et al !! It's this reckless casino capitalism with *NO* brakes that has virtually destroyed the economy of the West and put billions of other people into deep misery !!

    As I see it, it's time, and well overdue time, that banking *MUST* be broken up into retail banking, for the ordinary man-in-the-street, and casino banking, i.e. "merchant" banks, "investment" banks, hedge funds, etc !! It is also overdue time, that people cannot expect to keep borrowing money to fund projected continuous expansions since those expansions may not work out quite as planned !!

  • Comment number 91.

    #83 A Good Point, also the key battle they were fighting with one weapon was against the wrong enemy.
    Basing Money Supply control on CPI & not RPI, basically ignored the biggest asset bubble - the out of control property market.
    This target was set by the Govt and not the BoE. Tells you alot about Prudence. He wanted the UK electorate to 'feel rich' through inflated house prices, leading to equity withdrawls to fuel consumers spending on imported goods. Very Good Long Term Planning.
    Incidentally, today the PM has paid tribute to Jacko. Doesn't he have anything better to be spending his time and effort on?????
    Like running the country?
    God help us!

  • Comment number 92.

    Robert,

    As we're going all theological (perhaps it's increasing desperation) - and talking old testament - how about we remind ourselves of a few lines from the good book.
    I do not believe in God, but I do know a warning when I see one (no matter how cryptic) - strangely our previous Prime minister claimed to be a devout Christian, and along with his Chancellor and the previous US president they seem to have assisted in breaking every one of God's laws.

    "The rich rules over the poor, and the borrower is the slave of the lender"
    Proverbs 22:7

    "Be not one of those who give pledges, who put up security for debts. If you have nothing with which to pay, why should your bed be taken from under you"
    Proverbs 22:26-27


    "If you lend money to My people, to the poor among you, you are not to act as a creditor to him; you shall not charge him interest."
    Exodus 22:25


    ...and finally - is this a stark warning for the current Government?

    "He who oppresses the poor to make more for himself or who gives to the rich, will only come to poverty. "
    Proverbs 22:16

    When is the church going to really speak out and condemn the practices of the banks?

    Why do we need regulation when the rules were already written for us - hundereds of years ago?

  • Comment number 93.

    #22 "1. Establish product certification procedures via the FSA, no more collateralised debt products et al without certification, and no more buck passing by the FSA in future. Any further mistakes will absolutely be on their watch."

    This sounds like the tale of who's going to put the bell on the cat's neck !! It's all very fine to say that the FSA has to certify the products but does the FSA have the people and the talents to actually know enough to "certify" that the products are good ??

    Remember that these are highly complex instruments and they need people with lots of knowledge and experience to see all the possibilities of where things might go wrong !! Or are you suggestion that the FSA do what this government does ?? When things go wrong, they just say "lessons have been learnt" and sweep everything under the carpet !! That makes for an extremely lumpy floor covering !!

  • Comment number 94.

    It is nonsense to try to run a market economy with ring fences all over the place the see-saw only works if it rise and falls equally on both sides, if intervention comes into play prices, costs, poverty, wealth all get skewed businesses markets have to rise and fall and everything has to take the consequences, business, people, politicians, civil servants and especially bankers

    If we are to run a regulated economy there has to be rules of the game that everybody understands and a level playing field world wide. The collapse of the economy and the now social misery created by this labour partys policy for the last eight years has at least given us the opportunity to build a better society will it happen - No.

    John Major and olleagues new globalization had arrived because following Maggies reform of the industrial relations landscape and bringing us into the new computer driven age gave us the opportunity for a level playing field. Sadly the old fashioned belligerent socialists thought it was a ruse and they would be excluded from the opportunities beingcreted. Blair spotted the chance and took it Gordon then in total self belief decide he could improve Majors plans and end boom and bust if he just re-wrote the rules. As a result the poor especialy and he country have become poorer and will be paying for this mess for at least two decades maybe three.

    The rich have run of with the spoils the procrastination that is the hallmark of GBs government and the belief that it is no use bolting the stable door after has now allowed the bankers, the city and the unregulated back in to grab what they dropped on the way out last time.

    Why has Gordon now done nothing to regulate the game to put in some rule to balance the economy to show what is needed for a fairer society and a society of opportunity of which this labour party has expunged all. Well his dilemma is if he created some rules and made some policy that would start to put things right that would be tantamount to admitting just how wrong he was.

    For dear Mr prudence that would be one blush to far so he will leave the door open make the state of the poor, the oppressed and the depressed ten times worse and leave it to the next government to sort out I wish we could afford the other parties to walk away and leave Gordon to have to sort it for the next five years.

    It would not be too many years before an uprising of the labour part supporters pushed every labour politician north of the border and closed the stable door on their inept socio-economic management for ever. For history shows that while they talk a good social policy they have failed at every chance they have had since the last world war to deliver one and they have always been instrumental in fiscal failure.

  • Comment number 95.

    #78 - blefuscu

    "Freedom needs rules"

    Wow - how do you manage to live in such a contradicting world?

    The problem with rules is once you start making them - you can't stop. Just look at the laws in this country - we should be looking to make less rules not more.
    The whole excercise will result in huge sums of public money being wasted on employing 'talented regulators' who get trounced by 'shrewd bankers' as the latter will always outnumber the former.

    I completely agree that the Moral hazard has gone - but you can't simply make one up as someone else pointed out - when is a bank too big? what criteria is used? will there be exceptions? when and how? what about umbrella companies and diverse structures? What about international borders?

    ...thats a lot of questions to get answered - and very little time in which to answer them...

  • Comment number 96.

    #85 duvinrouge

    You have made some insightful posts today.

    The sad fact is that there is no-one who works in the running of the country who can accept this. Lie after lie is told in order to keep the charade going, just like a bad gambler who wants to borrow some money because "just one more win will see me straight".

    Every Pound, Dollar or Euro that has been 'made up' in the last 10 years will now be 'unmade' - it won't be a smooth process and different sectors will be affected in different ways.

    When Governments talk of 'growth' which exceeds the actual rate of production - it's like me saying I'm a millionaire because I have 10 credit cards with a limit of 100,000 each.

  • Comment number 97.

    In todays BBC News article 'Bank says banking crisis easing' the Bank of England's 'Financial Stability Report' is quoted:

    'In its Financial Stability Report, it said the total losses from the financial crisis reached $15tn (£10tn).'

    $15 trillion or almost £10 trillion loss!! That is an awful amount of money (assets) to loose and we as taxpayers will be paying for the best part of this decade for it, currencies will be devalued via inflation and public investment and services will be cut. The consequences are grave, many people are already jobless and many have lost significant parts of their pensions and savings.

    I am sure the banks and other financial institutions have not paid
    £10 trillion in taxes during the good times, so where has the money gone?

    A significant part of the financial industries worldwide profits was never taxed and has been moved abroad into tax havens and offshore accounts by institutions and individuals. An estimated $15 trillion is sitting, stashed and hidden away, in those tax havens and offshore acounts, much of it never taxed.
    Let's get these monies (assets) back form the global shadow banking system, enforce taxation by let's say 40%, invest it in value creating industries and the future will look brighter. Who has the political will to get this done?
    You can find more arguments on these issues at:
    http://globalinsights.wordpress.com/



  • Comment number 98.

    74. At 11:27am on 26 Jun 2009, Fingertapper wrote:

    OK remember the queues outside Northern Rock? THe FSCS guarantee was still in place then - it didn't stop the queues. Remember the goverment said it would back ALL deposits, not just those up to the FSCS level? it still didn't stop the queues.

    If they hadn't backed the banks poeple all round the UK, regardless of any legislation or guarantees, would have panicked and there would be queues all rounf the country. Herd mentality - sad but true.

  • Comment number 99.

    #90 - Your point on HSBC not needing a bailout is pertinent.

    But it has little to do with Retail and Inv Banking being split. HSBC has and has had for the last 15 years one of the ten biggest, globally, Inv Banking Divisions.
    It was one of the first to take a hit on the US Sub Prime crisis back in early 2007. Yet it still didn't need a bailout.
    Why?
    Because for the last fifteen years it has had the highest or one of the highest Tier 1 Capital ratios of any bank in the world. This is the key for regulation of banks.
    Brown as Chancellor and architect of the Tripartite UK Regulatory System, did nothing to enforce UK Registered(This matters regardless of where they do business) Banks to maintain sufficient Capital.
    Why?
    Because this would have restricted their ability to lend to the debt hungry UK Retail & Corporate Mkts, and this would have restrained the UK electorate's 'feel good factor', leading to no third term for Labour.
    The requirement to raise Tier 1 Capital last Autumn was years too late, and actually led to RBS, Lloyds and HBOS falling into Public Ownership by stealth.
    So it all leads back to one street, it's not Wall or Threadneedle but Downing.
    No 11 until 2007 and now No 10.
    Spin and Blame may fool some people, but denying the facts of history is usually a precursor of the arrival of the men in white coats.
    And not a moment too soon.

  • Comment number 100.

    It used to be the case that professional firms -lawyers,accountants,stockbrokers - were not permitted to incorporate.
    Unlimited liability kept risk taking under control as all the partners in a professional firm kept a close watch on the business that was being undertaken.While it would be difficult to make partnership the required legal structure of banking groups,would it not be possible to require certain activities within large financial groups to be structured as partnerships -proprietary trading activities for instance - while attaching to group level executive directors a responsibility for net group losses arising from transactions entered into during their period of membership of the Board and coming to light within five years of their retirement from the Board limited only to the total of their remuneration as directors for the whole period of executive directorship?

 

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