The ghost of banks to come

 
View of the City

The fog covering the future shape, size, ownership and culture of British banks should lift a bit in the next nine days, as first the Parliamentary Commission on Banking Standards issues its final report and then we have the chancellor's annual report to the City in his Mansion House speech.

Actually it's not 100% that the views of the commission will have been crystallised and published by then.

Today its 10 members - MPs and Lords who include the current Archbishop of Canterbury, one of the most influential of post-war chancellors, and a former head of the civil service - meet for the first time since March.

They will discuss a draft report of more than 550 pages, written by the Commission's chairman, Andrew Tyrie, and 100 pages of amendments submitted by the members (see here for more on this).

Reaching a consensus on every one of the contentious issues - and Tyrie has told his colleagues he would like to reach a consensus view rather than a majority view - will not be easy.

So the aim of finishing it all by the end of the week is a stretch.

The meat of the report is implied by what's written on the tin, so to speak - it is about banking "standards".

There will therefore be recommendations on how to make it easier to ban and punish senior bankers who preside over the kind of debacles we saw at Royal Bank of Scotland (RBS), Lloyds and Northern Rock in 2007-8.

There is a view on the commission (and more widely) that banks aren't like normal companies, in the sense that they are perceived as so pivotal to our economic well-being that most governments will bail them out rather than let them go bust (and that's likely to remain the case, even as attempts are being made to lessen the systemic impact of banking failure).

One implication is that the standards of stewardship and governance we regard as acceptable for most companies are too low for those who run banks - such that somehow the superior due care we need from bank directors and senior executives has to be made explicit, and breaches properly punished.

This will not be easy. It cuts across company law and natural justice. But it is pretty important (arguably).

And, to state the bleedin' obvious, the commission will have something to say about pay.

It will probably lament that new rules from Brussels placing lower limits on bonuses have encouraged banks to push up the fixed or salary element in remuneration. Or to put it another way, hard times for top bankers appears to be against the laws of nature.

So the commission will try to rehabilitate variable pay by saying the wonga should be handed over not in the course of one-to-three years from the date of award, but over a decade or so - till enough time has elapsed to really judge whether banker's conduct and deals are yielding delicious or rotten fruit.

Then there's that recommendation in Tyrie's draft report I mentioned last week, namely that RBS's residual toxic assets should be hived off and kept in the public sector, to give a bit more oomph and sparkle to what would be left of RBS (an enormous bank), that would then be privatised.

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Breaking up RBS will remain a live option for some time yet”

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The Commission's members are split on whether to go with Tyrie's suggested wording, which is a pretty explicit call for cleaning up RBS in this way, or whether they should instead ask for a detailed and rigorous analysis of the costs and benefits of such a reconstruction.

There is unease among members that the commission itself hasn't carried out such a forensic cost/benefit assessment, and is currently relying to an extent on the backing for such an RBS reconstruction given by the retiring governor of the Bank of England, Sir Mervyn King.

For what it's worth, and contrary to widespread reports, the chancellor is not implacably or ideologically opposed to breaking up RBS, and nor are his officials.

They're just not clear whether dismantling RBS in this way would be good or bad for taxpayers' wealth.

I am pretty clear, therefore, that breaking up RBS will remain a live option for some time yet.

George Osborne

Which brings us to what the chancellor is likely to say next week at the Mansion House on the timetable for privatising Lloyds and RBS.

Just so you know, officials recognise that if price were not an issue, the process of flogging taxpayers' 39% holding in Lloyds could begin tomorrow.

But price is a huge issue. The Chancellor has to decide what method of selling Lloyds, and on what timetable, delivers the best prospect of taxpayers recouping the £20bn they've invested in the bank.

That will not be easy.

And to compound his woes, if he says something in coming days as precise as that he is minded to start the selling process by the end of the year, he will create a huge incentive for every hedge fund in the world to short-sell the stock and drive the price down - because they'll know a huge chunk of the company is about to be offered.

So George Osborne will have to say something that creates momentum towards privatisation, but doesn't bind him.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

This column...

This column may be a bit quiet for a bit, because I am away from the office.

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  • rate this
    +9

    Comment number 10.

    8+

    The brutal capitalist reality MUST be allowed to work its way through the banking system or the depression will just go on and on - as it has done for exactly the same reasons in previous depressions where 'clever' economists have pretended that they can finesse their way out of the reality!

    The banks are bankrupt - so like any other business that is bust they MUST be allowed to go bust!

  • rate this
    +6

    Comment number 9.

    Giving shares to the public is a political stunt with no economic benefit. I desperately hope Osborne rejects this token populist idea. Buying the shares was not a direct cost to individual taxpayers and selling them should not be a benefit. Sell them to investors willing to put their capital at risk and use the proceeds to make a difference to our society.

  • rate this
    +6

    Comment number 8.

    6+

    The state is still being bribed by the banks with taxpayer's money. THIS MUST STOP.

    All QE / FFL / Zero interest rates /100K Euro guarantees must cease & be recovered/repaid.

    We HAVE to return to a sane capitalism where banks are prudential and do not rely on the taxpayer for their continuing existence - THE TAXPAYER HASN'T GOT THE MONEY!

    Without these basic steps - we will NEVER recover.

  • rate this
    +2

    Comment number 7.

    The fact that the Archbishop of Canterbury is in on this makes the entire commission worthless. Following on from his comments on gay marriage I would not accept anything from him as gospel

  • rate this
    +5

    Comment number 6.

    1. The existing banks are BUST! (and can ONLY remain so!)

    2. We needs banks, that are solvent and provide banking services to the BRITISH people in the UK. (No more foreign adventures!)

    3. We must break up the UK arms of the existing banks into 40 banks and let the foreign bits sink. Tthe UK people can't afford to bail them out!)

    4. The price on money MUST rise to reflect risk etc. or ELSE!

  • rate this
    +3

    Comment number 5.

    'the ghost of banks to come'
    well Ebenezer Scrooge McDuck is alive and well and living in the City of London and hasn't learnt any lessons from previous ghosts as the zombie banks are still lumbering around.
    'tiny tim' Tyrie....will he make a difference we wait for the denouement of the potboiler with baited breath .
    I hope I won't be saying BAH HUMBUG when they FINALLY produce their report

  • rate this
    +3

    Comment number 4.

    Don't sell the shares until they are worth at least as much as we paid for them - unless they are to be evenly distributed around the population who picked up the tab for the bankers' greed driven, entitlement culture that caused the mess.....


    ....anything else would sell out the electorate in favour of the already obscenely rich.....


    ....but then we look at the Govt's record....

  • rate this
    +3

    Comment number 3.

    We all know what will happen. The shares will be sold off to the rich at a knock down price allowing the rich an opportunity to get richer,. The rest of us stand no chance of getting anything because we pay our bills and taxes from our meager salaries and have nothing left over to buy shares with. As normal the 0.005% benefit, the rest are well and truly...

  • rate this
    +23

    Comment number 2.

    R.P "The Chancellor has to decide what method of selling Lloyds, and on what timetable,"......."That will not be easy."

    Oh yes it is

    It's a big giveaway, before the next election. So "that other lot, can't get the political boost by giving it away.
    The business, profitability and what is best for the taxpayer, are irrelevant.
    This is politics not business or economics.

  • rate this
    +1

    Comment number 1.

    "One implication is that the standards of stewardship and governance we regard as acceptable for most companies are too low for those who run banks.."

    Please, for the love of my children, ask *why* that is the case if you're an investigative journalist. You have a duty. Others already are : http://www.positivemoney.org

 

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