Osborne: Please don't biff ring-fence

 
George Osborne Mr Osborne was grilled on how he plans to reform the structure of banks

Which of us can stand up and say, with credibility, that the institution that employs us is beyond reproach and needs no reform (a propos of nothing, I work for the BBC, in case you have forgotten).

The Bishop of Durham, about to become primate of the Church of England, may never have been tempted to make that claim.

But I was struck that after I tweeted his musings, that perhaps big banks should be broken up into smaller banks - so that if they go bust, they might not bankrupt the rest of us - there were a few "people-in-glass-houses" rejoinders tweeted back to me, to the effect that he should keep his holy masculine beak out of finance.

And although our biggest British banks have never yet had a female chief executive, Ana Botin runs Santander UK and Jayne-Anne Gadhia is the boss of Virgin Money - the banking equivalents of the diocese of Durham, perhaps, if not quite York or Canterbury.

I presume at some stage the Parliamentary Commission on Banking Standards, on which the Archbish-elect sits, might look at whether a slightly more equitable gender balance at the top of finance might encourage better behaviour.

Most would say this cultural issue sits squarely within the remit of the Commission, which was set up by the chancellor in the furore of the first disclosures of how leading banks set out to rig the important Libor interest-rate benchmarks.

But strikingly this central and important question of why banks were so prone in recent years to bend and break the rules barely got a look-in during today's grilling by the Commission of the chancellor.

To the evident discomfort of George Osborne almost the entire session was spent picking over the principle and detail of the way he is planning to reform the structure of banks, based on the recommendations of yet another commission, the Independent Commission on Banking, which was chaired by Sir John Vickers.

As you will recall, the central element of the Vickers/Osborne reconstruction of UK banks is that their retail operations, which look after our savings, should be insulated or ring-fenced from their investment banking activities.

The point of this significant but expensive and fiddly reorganisation, said Mr Osborne, was to give confidence to future chancellors that they could allow big broken banks to go bust, rather than feeling obliged, as Alistair Darling did in the case of Royal Bank of Scotland and HBOS in 2008, to rescue them at enormous cost to the taxpayer.

What matters, Mr Osborne insisted, is that the ring-fence, combined with so-called resolution procedures designed to expedite a dismantling of broken banks, will allow customers to get their money from bank ATMs, even when a bank is failing.

Only another banking crisis will prove beyond a reasonable doubt whether he's right (let's hope it won't come to that again for a while).

But although there have been extensive investigations of these plans by MPs on the Treasury Select Committee and by Lords on the Economic Affairs Committee, the Commission is having another go at picking over them.

Which worries an anxious chancellor, who pleaded with the MPs and Lords on the Commission not to throw out the ring-fence - on the basis that he has been slaving for two years to build a national consensus for it.

"Consensus, conschmensus" was broadly the reply of the parliamentarians.

The consensus might be an ass, they said. We assert our right to come to our own views about the best way to minimise the costs to British citizens of future banking crises, they added.

Which doesn't mean that the Commission will recommend the status quo ante, no change. With Lord Lawson, the Bishop of Durham and a clutch of Labour members on it, the pressure will be for a more radical and definitive separation of investment and retail activities - coupled, perhaps, with cutting the biggest banks down to size.

George Osborne knows this and fears this. And in occasional manifestations of tetchiness there was just a hint of regret that he had set up the Commission and asked the distinguished lawmakers for help in sanitising our enormous banks, while conspicuously failing to constrain their purview.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    0

    Comment number 159.

    158All for All

    You are getting a little obscure (perhaps its the 400chs!)

    In #156 I was banging on about the price of money.

    Are you suggesting that economics is not only abut price mechanisms but also about the exploitation of inside information & monopoly profits then I have to agree - but these are market perversions to be resisted are they not?.

    Hence the need to aim to reduce inequality.

  • rate this
    0

    Comment number 158.

    John_f_H@156

    Many know exactly what to say or to do, about particular factors studied or systems of which special experience

    In general we trust each other, have to if to get on: but lately we have begun to see more of 'differential benefit', and to find suspicions not so unworthy

    Again I must press, your view IF in Equal Partnership, perhaps employed to invest to meet our "need or advantage"

  • rate this
    0

    Comment number 157.

    154.Up2s

    My 10 Barclays(HBOS/Lloyds/RBS) banks could not operate together or merge or share capital etc etc.

    I think you meant to write BoE not CoE - I know money is a religion but.

    It is not democratic to see the lost generations of youth which your inaction will create just to save a few bankers!

    Houses are places to live NOT pension schemes - that was blown apart by the idiots at the BoE!

  • rate this
    0

    Comment number 156.

    153.All for All "does circulation need interest"

    Probably, as without a time related cost of holding cash there is no need or advantage to either invest or lend it.

    Money without a price collapses capitalism (as we have seen!)

    This is why all of present zero price/negative price for money does not work in the manner it is intended to work! Year after year we are sadly watching it come to pass.

  • rate this
    0

    Comment number 155.

    152. Up2s Property Crashes

    Please read up the economic history of the 1870s property bubble and how by waiting for the system to correct itself (through asset price deflation) we had to wait about 23 years for the economy to get back into working order.

    It is not a question of being able to avoid the crash - it will happen as the sums ensure it will happen - when is a bit of our choosing,

  • rate this
    0

    Comment number 154.

    @147
    Do you know enough about banking & the 4 banks concerned to know if they have 10 separate businesses in their group structure?

    They might have more. Or less.

    If you were CoE & looking for tax take to fund even reduced spending, would a fracturing of Big 4 result in greater or reduced profitability & CT receipts? Could the parts even survive alone?

    Be careful what you wish for ...

  • rate this
    0

    Comment number 153.

    John_f_H @146
    Rates "reflect risk"

    Seems sensible, at arm's length: but in a 'co-operative' society?

    Given Equal Partnership:

    No home mortgages: secure individuals exercise rent-choice

    No major personal loans: cars hired, costs depending on record

    Investment agencies allocating 'by risk-group', for 'equity' in taxed profits

    Given 'common interest in outcome', does circulation need interest?

  • rate this
    0

    Comment number 152.

    @90 J_f_H
    Well, once again, if you remember your (recent) economic history you will recall the disaster that was the only real property crash that has occurred in the UK, the one under the Tories in 1989/90-1994/5.

    Do you really want to put people through something like that again? That I think is the essential difference between you and me. The Eurocrat approach versus the democrat.

  • rate this
    +1

    Comment number 151.

    #146,147 JFH spot on glad I can agree with you on these

    thin kit should be more than 10 BUT also you hae to address the issues of ownership and nationality etc so some offf this has ot be done at a global level or you have to put in place some sort of protection , eye just like france and Germany maybe ?

  • rate this
    0

    Comment number 150.

    All you can do is give them a nudge down the right path.

  • rate this
    0

    Comment number 149.

    No145 Matt,
    The act was repealed after a well funded campaign by US politicians on the payroll of the banking industry.
    We see the resulting chaos - near world wide economic meltdown.
    Do you think it is possible that 'Pasty George' could be influenced from a similar type lobby group in such a way to prevent meaningful legislation that is so obviously required.

  • rate this
    0

    Comment number 148.

    @ 135
    I got my wrist slapped last week for going off-Thread, Comrade, albeit IIRC on a subject that should have been covered on that particular Blog had the Ed been posting like they used to - once a day.

    I get a feeling something is going on. Is it that just having pushed the w/s & Blogging thing for six years dear old Auntie is now tiring of it?

  • rate this
    0

    Comment number 147.

    145.
    Matt

    Furthermore we KNOW how big and any bank can be before it is too big.

    That is it must always be small enough so as its failure does not break the system.

    How big is this? Obviously smaller than Northern Rock!

    So we must break every bank down into parts smaller than Northern Rock.

    [Hence my plan for breaking the big 4 into ten parts each!]

    Thoughts?

  • rate this
    0

    Comment number 146.

    131. All for All John_from_Hendon@127 "prudently priced money"

    On the pricing of money

    The capitalist system will always try if it is unfettered by monopolies and vested interests to reflect risk as the price of money.

    So duff banks 'should' pay a lot etc.

    But the idiots at the BoE are DELIBERATELY rescuing their friends with QE and at the same time destroying money and capitalism.

  • rate this
    +1

    Comment number 145.

    Regulatory frameworks fall apart as soon as we think that we are cleverer than our parents. Following the crash and Great Depression in the US in the 1930s, investment and retail banks were split up (Glass–Steagall Act). They were repealed in 1995. Now we are looking to re-apply them here. History can't predict the future, but it has lessons to learn.

  • rate this
    0

    Comment number 144.

    My Lord Archbishop was very refreshing when he argued for small banks. Some of us have been doing this for a tad longer but the logic is getting through. The only people who think differently are in the megabanks and in The Treasury: since these are often the same people this should not surprise.

    Put simply it is between the money-changers and the rest. The role of the Archbishop is quite clear.

  • rate this
    0

    Comment number 143.

    Why did he disable comments on Hp what I said was laptops need to have the same or better graphics processing power as desktop PC's.

  • rate this
    0

    Comment number 142.

    139&141.ds

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

    Seemed to me irrelevant, not irreverent.

    Who's modding today at the Blanket Banning Commissariat?

  • Comment number 141.

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

  • rate this
    +1

    Comment number 140.

    127 JFH

    Don't disagree on asset values are to high, and for me a healthy economy needs prudently priced/stable money.

    A worker sleeping by his machine is always going to be more competitive than one commuting on an over priced train.

    Decision making done abroad.

    You will not create a healthy economy, with monetary policy alone, we need much more than that.

    Need a system change.

 

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