Next week's banking White Paper turns out a bit "green"
I've learned that key parts of next week's Banking White Paper will actually turn out to be "green" - that is, it'll be more of a discussion document. Now then...
Between August 2007 and October 2008, one after the other, the British banks had to be rescued. First Northern Rock, then HBOS, Bradford and Bingley, RBS and Lloyds. Bank bosses got their marching orders. And one of the the regulators did a vanishing act as well. Sackcloth was worn. A whole new era of banking regulation was promised.
Before we had the FSA we had what bankers used to call, regulation by eyebrows. One of the great and good would wander up to a City banker, possibly at the cricket, and say - "You know that thing you're doing at the bank, well ...." and raise his eyebrows.
Today there's no chance of going back to regulation by eyebrows. But there is a bit of a spat over whose eyebrows will be the most powerful in the future.
The new boss at the FSA, Adair Turner, has called for a "radical change" in regulation.
Central to that is the power to force banks to hold more capital. Banks that hold more capital make less money. Turner wants to use this power
- to raise the amount of capital banks have to hold the boom phase of an economic cycle
- penalise banks seen as taking unneccesary risks
- and to rein in banks pose a threat to the entire system
Newsnight understands measures along these lines will be in the White Paper due to be published in the next week. But they'll work bank by bank. There will be no general quota for the capital banks must hold; nor will there be a general limit set of the leverage (i.e borrowing) banks can work with.
There is general agreement now to move to something called "macroprudential regulation".
This means regulating to prevent booms turning into bubbles, and considering risks to the whole system not just individual banks. But behind the scenes it has been eyebrows at dawn over who will actually wield this power.
The governor of the Bank of England thinks he should do it. So do the Conservatives. The government wants the FSA to do it. And the banks above all want certainty.
There is another problem: Britain is home to some of the world's biggest banks. Some, like RBS, were clearly too big to fail. Others, like HSBC, are so international that it's never really clear who would, or could, pick up the pieces if it failed. That has led the Bank of England to cause a few eyebrows to be raised, by saying this:
"If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure." (Mansion House speech)
Newsnight understands the government will demand the banks that do a mixture of low risk and high risk business break themselves up into legally separate entities, so that the deposit taking part could be rescued over a weekend and the high-risk part allowed to fail. There will be new rules drawn up under existing law.
Many in banking fear that the behind the scenes battle will mean next week's White Paper is inconclusive.
I understand that - on rules to protect the whole system, and on the issue of breaking up banks that are too big to fail, the government is set to issue, effectively, a Green Paper - that is a discussion document. The government is, effectively waiting to see what the USA and EU do on this. Some in the world of banking see this as a sign of weakness.
In the new system there will be no general quotas for holding capital, no maximum ratio for the amount of borrowing a bank is allowed to do. It will all be regulated, bank by bank, by Adair Turner at the FSA. it's a very British solution.
Nearly a year on from the financial meltdown, amid a political stasis on the strategic issue of regulating systemic risk... we'll get a discussion document. As one banking insider put it to me rather cynically tonight: it will be "Winning the Fight for Britain's Banking Future".
But the way, forget Matt Lucas and Stephen Fry - follow me on Twitter, here.