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Can banks dodge the break-up?

Robert Peston | 11:42 UK time, Thursday, 31 March 2011

There is a slightly odd lead story in the FT this morning, which says that "senior Whitehall officials are pushing for a three-way peace deal between government, big banks and the Independent Commission on Banking".


Bob Diamond, Chief Executive of Barclay's bank

That may be so. However, if it is, the commissioners don't know about it - and nor does the Treasury. And the commissioners are certainly in no mood to alter their interim report, due in 10 days, for anyone.

It is also mildly amusing that one of the commissioners is the FT's Martin Wolf. I am confident he had no role in the creation of that splash story.

What is happening is that the UK's big banks are thrashing around in a state of mild panic, because of their concerns about what the commissioners will recommend.

The penny has dropped for them that this is the big event, more important than the final report due in the autumn - because it will condition the public and political debate about how to fix the banks, which will in turn determine what the government eventually feels confident it can deliver.

So what do I expect from the commissioners?

Well, as I have said for some time, I would be staggered if they don't recommend some form of break up of the universal banks - Barclays, HSBC and Royal Bank of Scotland - which combine investment banking and retail banking.

A formal, physical separation isn't likely however. What I would expect is a proposal for investment banking and retail banking to be put into separate subsidiaries, each of which would be obliged to have their own respective pots of capital to protect against losses.

The idea would be to insulate the retail banks - the bits of banks that look after our savings, move money around and lend to individuals and to smaller businesses - from the risks taken by investment banks.

Think of the separation as the equivalent of building a super-strong steel and concrete firewall in the middle of a building - which would protect one half of the building if the other half were to catch fire.

You probably think that all sounds sensible. But the banks don't like it, for two reasons.

First, capital is expensive for banks, because of the rewards expected by the investors who provide capital. So if the bits of RBS, Barclays and HSBC that do investment banking are separately capitalised - to use the jargon - they would probably have to become much smaller organisations, focusing only on business that is particularly profitable.

But perhaps an even great worry for these mega banks is what would happen to the cost of the money they borrow. They fear it would become much more expensive for their investment banks to raise the finance which they then use for lending and investing.

How so?

Well if creditors of Barclays or RBS, for example, came to believe that the relevant investment bank was now so separate from the retail bank that the government would no longer feel under any pressure to rescue the investment bank to protect ordinary savers and the money transmission mechanism, that investment bank would be perceived to be riskier.

It would no longer be seen to be "too big to fail".

And once any institution is seen to thrive or sink according to its own management of its affairs - and is no longer benefiting from any kind of protection or insurance from taxpayers - well, at a stroke it has to pay more to borrow.

Now you might think that is the whole point of what the banking commission is trying to achieve. And you would be right.

But the banks don't like it, because if they have to pay more to borrow, then either their profits are squeezed or they have to pass those increased costs on to customers.

And, they say, they would not be able pass those costs on to customers - because they face competition from overseas banks which don't face the same strictures.

Now, for what it's worth, the banks believe that the benefits to their funding costs of being too big to fail, of being implicitly protected by taxpayers, have been overstated.

As readers of this column will know, the Bank of England estimated this implicit subsidy as being worth around £100bn per annum at the peak of anxiety about the fragility of banks in 2008-9, and perhaps half that figure subsequently.

What the banks would say is that at least some of the lower funding cost for universal banks derives from the perceived benefits of business diversity - that investors prefer lending to organisations whose eggs aren't all concentrated in one basket.

Hmmm. Some will see that as an admission that investors don't really like lending to investment banks, precisely because they are perceived to be riskier. Which brings us back to the question of why on earth taxpayers should underwrite investment banking?

Anyway, if you are with me so far, you will understand why the likes of Barclays, HSBC and Standard Chartered are all muttering about moving abroad to avoid this kind of enforced break-up.

Which brings me, in my meandering way, to my destination: are these threats to move abroad credible, and if they are, how much should we care?


A plane flies past HSBC headquarters in London

One of the most startling omissions from the debate about how to make our banks safe is any serious analysis of the costs to the UK of the relocation of the head offices of one or a number of banks to another country.

Let's be clear what we are talking about. Barclays and HSBC could not move their branches. Nor could they quickly or easily move those bits of their investment banking operations that serve UK or continental clients. We are talking about the economic impact of relocating head office functions.

How much would this damage the prosperity of the City of London and the UK? Would it damage the UK more than the benefits of reducing the UK's vulnerability to the kind of cataclysmic banking shock we experienced in 2008?

The truth is that we don't really have the numbers to make a quasi-scientific analysis of the benefits and costs. So, paradoxically for an industry that prides itself on its facility with numbers, this is a debate conducted largely in fatuous emotion and generalisations.

Which is why I am sure the Independent Commission on Banking has done some work to estimate the financial benefits to the City and the British economy of having so many mega bank HQs here - and the potential costs of their possible emigration.

It will be fascinating to see how it evaluates the scariness of the banks' threat to leave.

I suspect the commission will also shed light on the credibility of that threat to depart - especially the question of whether the single European market would make it easy for our big banks to dodge the proposed reforms merely by relocating to Luxembourg, Frankfurt or Paris.

It is possible, I think, that the commission has found that EU law makes this kind of regulatory arbitrage impossible - even if it were possible that Barclays, for example, would enjoy the idea of embracing the German or French way of doing capitalism (which seems highly implausible).

As for Luxembourg as a possible HQ, that is absurd. The idea that Luxembourg has the regulatory resources or sovereign balance sheet to play host to banks whose balance sheets are bigger than the UK economy is not credible.

What about taking flight to some other part of the world? Well I think it would be surprising if Standard Chartered didn't move its head office to Asia or thereabouts some time in the next five years whatever the commission recommends - simply because it looks more and more odd that a bank with no serious operational presence in the UK is run from here.

But what about Barclays going to New York or HSBC going to Hong Kong?

In an earlier post, I explored why HSBC will find it hard to move. As for Barclays, how easy would it be for that bank to retain its complicated and beneficial tax arrangements if it relocated?

Not very easy, according to my tax specialist chums. So would Barclays owners be pleased to see the bank move, if that generated a big tax bill? They would probably not be ecstatic.

Comments

  • Comment number 1.

    Is the photo of a plane crashing into a bank? Seems a bit extreme to me.

    It is nice to see you write an article about banks Bobby P. It makes a lovely change.

  • Comment number 2.

    Today we find out how what remains of the Irish banking industry copes with its stress test. This is about how much the banks have reserved to meet the demands of depositors and the expectation is that this will not be enough. In other words, the banks are technically insolvent. There is an offence known to directors, auditors and legal advisers, of trading while insolvent. It needs enforcing.

    The need to retain sufficient reserves has already been pointed out to the insurance industry and the Pru, for one, has not relocated abroad.

  • Comment number 3.

    The solution to the crisis must be about writing off debt - busting up the banks is a side issue. Make no mistake until the absurdly high level of 'so called' secured debt is deflated the economy cannot regain any resemblance of vibrancy. Yet the daft bankers want to flog more debt - this is an idea worthy of the madhouse.

    The fact is that much of the debt sold by the banks in the last decade is not worth what it appears to be worth on their balance sheets. This is all about house prices. They are still far too high, by at least 50% (in some case 75% or more). There will be no recovery until these are deflated and prudential personal financial management is rewarded. Nothing else matters.

  • Comment number 4.

    I think that there is more than a bit of politicking going on Robert which is likely to leave us non-politicos somewhat cold! I gather from your tweets that you are travelling today but after your update of yesterday on Ireland you may be interested in what has happened in Portugal today.
    After reading this earlier.
    "In a tale that has become more than a little familiar Portugal’s national accounts have come under challenge. Or let me put it more accurately those who have unofficially complained about the treatment of Portugal’s accounts have begun to gain some official support. At the moment a bank failure from 2008 is likely to be put in the accounts which means that Portugal is now less likely to hit its fiscal deficit target of 7.3% of GDP for 2010 let alone her previous/caretaker government’s claims that the deficit target will be beaten. There are also questions about her treatment of privatisations."
    https://t.co/aA8FzGP

    I was somewhat prepared but inspite of the article being proved accurate it is still a shock that Portugal's government has not followed Eurostats rules and so we now find the fiscal deficit reported as 8.6% of GDP.

  • Comment number 5.

    An encouraging blog suggesting time to call their bluff. One query is has the ICoB the power to enforce the separation or indeed has the government. Would not this have to be referred to the Competition Commission who appear to have the power to force the sell off of airports but subject to all sorts of appeal/judicial review. Another consideration is that the government have to ability to remove the underwriting of personal savings from selected banks who would have to compensate savers for the obvious additional risks.

    The government has the option of retaining a substantial proportion of the banking industry in public ownership which would enable them to force the pace in competition terms. It seems to me that the banks do not have a killer negotiating position but is the Osborne flesh weak?

  • Comment number 6.

    Compare Barclay's derisory corporate tax bill for last year with the amount taxpayers have had to commit to the bailoout; the cost / benefit ratio for the British taxpayper is nowhere near good enough to make it worth our while having these banks here.

    The banks can't have it both ways - if they want the taxpayer to bail them out, they must contribute genuinely large tax revenues to the economy.

  • Comment number 7.

    "They fear it would become much more expensive for their investment banks to raise the finance which they then use for lending and investing"


    They are quite right , the banks are gaining a cool £100 billion a year through their investment banks being "Secured" by the tax payer.

    If true risk was built into their investment model , they would probably have to pay 5% plus base, far more expensive than they are currently paying.

    The bottom line is parts of investment banking is truly gambling and sits at odds with other traditional banking methods.

    If this division is not stoutly made I will guarantee another banking crisis of a similar size will occur.

    They will fight this this plan tooth and nail , their BONUSES depend upon it...

  • Comment number 8.

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

  • Comment number 9.

    The photo attached of the plane heading towards the HSBC building sums-up the situation neatly. The next phase of the crisis is almost upon us. The true situation of the Irish banks is merely the harbinger of what is to come regarding UK, US, & European financial institutions generally.

    The Fed has only one response to the crisis: print dollars as fast as possible. Hyper-inflation can't be far from a reality soon. Forget paper money it will rapidly become worthless as it is debased. Commodities, metals etc., will soon be the only really viable tradable currency. Dust off those books on Weimar and be prepared to trade your pianos etc for food!

  • Comment number 10.

    # 3 - prudential financial management - IF ONLY!

    The bailed-out banks and other financial institutions are now simply ZOMBIES sucking the blood out of individuals, families and nations. Many should be allowed to go bust, regardless of contagion, couter-party risk, etc etc. Until this happens 'the west' will remain in an economic death-spiral of ever deepening despair.

  • Comment number 11.

    One thing I am struggling with on that banking separation by means of "Chinese Walls".

    What would happen if the investment side of the bank through their actions racked up losses of, say, £100bn, or any amount far exceeding the available resources of the whole entity? Would only the investment bank subsidiary side go bankrupt? How would that work? Would that mean the entire bank would then report losses on its consolidated annual accounts for a long time to come? Wouldn't creditors have no recourse whatsoever to the parent group? Sounds rather strange - though I'm not an expert on corporate law.

    Also, what is stopping the retail side making highly favourable "loans" to the investment side? After all, it's all in-house. And then if that investment side goes pop - surely, the retail side will be affected too?

  • Comment number 12.

    Two points.

    As (effective) owners of RBS & Lloyds we can stop them even thinking about moving abroad.

    The others could contemplate going to another part of the world - but - they would have to consider where, as they may find their ability to operate restricted by the fact that other jurisdictions may consider their business practices too risky and may not have the resources or the political inclination to bail them out if (or when) they come an almighty cropper again.

    Those other parts of the world may also take a much more evolutionary view of their business and let those who can't survive or get themselves into unsustainable positions go the way of all species unable to compete - extinction.

    That would be the ultimate cost to their owners.

  • Comment number 13.

    7. At 12:50pm on 31st Mar 2011, hughesz wrote:

    "They will fight this this plan tooth and nail , their BONUSES depend upon it..."

    You hit the nail right on the head here.

  • Comment number 14.

    Ho ho ho. The banks bluff about moving elsewhere is slowly being unmasked.

    Like a demanding boyfriend or girlfriend the truth is we may be better off without them unless they are prepared to pill their heads in and behave.

    Can you imagine our bankers moving to Dubai or Singapore or Hong Kong - just hilarious!!

    John

  • Comment number 15.

    The Government would surely not want to jeopardise their share holdings in the banks. It is surely in their interest to see the share price in RBS, Lloyds etc escalate to beyond (well beyond) breakeven point. I understand that breakeven in in the mid 40p for RBS, but that giving the bank a little leaway, a share price of beyond £1 is not unrealistic.

    It is surely in the interest of the country and the Government to maximise the banks performance and eventually realise the capital investments they have in the banks to lower the debt burden and interest payments and relieve the burden on the taxpayer accordingly.

    By splitting the banks and impairing their performance potentials the Govt could be creating a rod that taxpayers will end up beating them with, whilst prolonging the countries indebtedness payback??

  • Comment number 16.

    I've just been approached by an 8 year old on a playground who said, "Do you know Barclays Bank are moving their headquarters from London to New York?"...

    That kid could go far...

  • Comment number 17.

    What happened in the crisis was that the Financial institutions effectively handed a blackmail note to the Govt. which said.-Give us your taxpayers funds or your economy will crash and your Govt. will fall.- So an establishment, wetting their trousers with fear, handed over taxpayers funds but the Government has no money and they had no true sanction from the electorate to do this but they were more worried about them selves than they were about the interests of the people. I think the electorate would rather have seen those that failed entirely taken over by the Govt. and the Chief Executives and the boards brought to account in the criminal court because, in my opinion, there is no question that this was about criminal negligence and fraud throughout the industry, about a derivatives market that, in my view, was and still is entirely based on fraud. When we saw the size of the bonuses we felt as if the Banks had hawked a large blob of phlegm from the backs of their throats, rolled it round their mouths and gobbed in our faces. We are appalled that so much credibility is still given to what we regard as some of the most incompetent and and amateurish institutions in the modern world. The Banks have left a trail of destruction where mortgages and homes were lost, jobs were lost, businesses went bust and lives were ruined forever. This is truly about organisations that have no moral standards and have lined their pockets on the backs of the misery of the poor. I suspect that there are still massive undeclared toxic assets and that the Banks will be coming back with another blackmail note any time now because they have not changed and, in my view, are still completely incompetent and unprincipled in their knowledge of finance and in the way they handle the assets of others. Taxpayers are becoming more and more incensed as the Govt. hands out their funds without approval or consent in what appears to be a systematic theft from the taxpayers. All of these disturbances on the streets are a result of the actions of an industry that I consider does not know its business, and never did, and I suspect that if something radical is not done soon to stop the Govt. robbing taxpayers to pay blackmail to the Banks then the situation will reach critical mass and the people will embark on a feeding frenzy and do it for them.

  • Comment number 18.

    Why is it with Mr Peston I never get the impression he is telling the whole story?

  • Comment number 19.

    If the Report does not pick a Banks and recommend that Banks leaves the UK then it will have failed to deliver change. If the Report does not pick a Bank and downgrade it to failed, then it will have failed to deliver change.

    The banks (both investment and otherwise) are running under the illusion that they are important and that importance makes them invulnerable. Their bail out has inflated that sense of invulnerability. The truth is, that their bail out has highlighted how fragile they are. They are a liability to the general economy. Their attempt to survive is indenturing Greece, Ireland, Portugal and so on because they mistake their models and projections of future profit as the actual conditions they will experience in the future and use considerable efforts to ensure the general economy conforms to those expectations.

    Yet, the truth is: banking is now a commodity that has no more added value than, say, petrol. Once oil refining was perfected, there was little to add value to the basic product - which has remained a stable, if diminishing resource for quite some time. Banking is no diminishing resource.

    As banking is not a diminishing resource there can be no premium on 'banking' and certainly no reason for banking to be bailed out above the level of actual cost for providing the resource. The truth is that banks could go abroad - but where? South America has largely rejected the debt bubble (of the 1970's/1980's Latin American debt crisis), China has its own way of doing things, much of Africa is too poor - the free rides for financiers are coming to an end. So, certainly, they should go offshore. Push one and get the experience over with. Push one and let it fail.

    Because the only things left in banking is an existence of corporate welfare -which costs the Sovereign economies massively by repatriating capital out of budgets - such as social, welfare, healthcare, infrastructural investment, business startup - into banking shareholder value. That habit of corporate welfare is being promoted, heavily, to other private concerns - both by example and by direct advice.

    Unless the Report advises that corporate welfare comes with corporate responsibilities (and the UK has a lot of experience of ensuring welfare places recipients under heavy and enforceable obligation) then it fails.

    Investment banks cannot have it both ways: a future based on speculation and a future guaranteed to be certain. In either case, the taxpayer should not be obliged to pay for these things for the negative return being experienced.

  • Comment number 20.

    #3. John_from_Hendon wrote:

    The solution to the crisis must be about writing off debt...

    Do you mean personal and household debt? If so, how do you propose we manage the writing-off of debt such that we do not reward the reckless and penalise the thrifty?

    Why should someone who has taken on a mortgage that they cannot repay be rewarded for their poor decision while someone else who has worked hard all their life just to keep a roof over their head and continues to live from month to month gets nothing?

  • Comment number 21.

    I wonder how many UK customers would be lost to these Banks if they continue to work in a way that is perceived to be riskier than there competitors.

    I certainly wouldnt want to bank with them , but i made that decision some time ago , i would hope many more would see the light and take notice of how they treat us with contempt when without our guarantees they would have ceased to exist.

  • Comment number 22.

    It seems pretty clear to me that the mega banks should split their businesses so that the shareholders equity in investment banking operations is truely at risk and not underwritten by the tax payer.

    But then suggest UK plc make it even more attractive for investors to come hear and take a risk in the investment banking sector by reducing tax on large successful operations - reverse the sliding scale on tax at the top end - for example after a notional first 10 million of tax paid start reducing the tax paid as a percentage of the whole. The marginal rate at the very top tranche of income is actualy less than in the middle. Just to make sure no-one takes the **** make it a triggered on some capital ratio so investors have to put real cash at risk.

    Result - normal boring deposit banks secured.
    Tax payers off the hook for casino operations
    Risk takers made to put real capital at risk - ie loose everything if they loose, but can get a real bumper reward at low tax if they win.
    tax take to uk government would increase.
    same deal for the mega rich - after the first x million you paid in tax the marginal rate should start to decrease.

    probably politically impossible due to our envy culture - but would certainly generate more tax receipts than labours 50% rate and the liberals bonkers mansion tax.

  • Comment number 23.

    Surely all this should be being sorted out at EU level at least? Or are only British banks evil?

  • Comment number 24.

    > What is happening is that the UK's big banks are thrashing
    > around in a state of mild panic

    They don't like having their noses rubbed in their dirt.

    > The penny has dropped for them ...

    The minds of these dullards work slower than the chains of hell.

    > some form of break up of the universal banks - Barclays, HSBC
    > and Royal Bank of Scotland

    The Romans had the best solution for anti-social behavior - flog the rank and file, and fling the ringleaders from the Tarpeian Rock.

    > But the banks don't like it,

    It's better than the Tarpeian Rock!

    > How much would this damage the prosperity of the City of London and
    > the UK?

    The damage was done by the greedy bankers when the caused the credit crunch. Now they have to get into "pay us back" mode, whether they like it or not. Diddums?

  • Comment number 25.

    So the banks are getting ready to move abroad, with a bit of luck, they might all leave for Ireland, after all they will be gauranteed by the Irish gov't.

    Perhaps all those that support the current banking system have short memories?

    Ireland Greece Portugal Spain, take your pick.

    We don't need to break up banks they are about to do it all on their own, when next crisis comes around, and it might be sooner than anyone knows, the house of cards falls.
    Banking is all about confidence, "I promise to pay the bearer" a promise is worth what exactly?

  • Comment number 26.

    The banks might not be the ones that move, Irish emmigration is on the rise, the country is broke.

    The next to leave might be us, I understand that working in a Credit Union earns lots of points if you want to move to Australia.

  • Comment number 27.

    Out of the Uk frying pan into the fire in the US or Asia? Robert should make the point the implicit taxpayer guarentee will not be forthcoming anywhere else either. Whilst I know ownership is international you must respect the soverign government of the UK where the banks business was originated and developed (a bit like personal taxation domicile). Until banks do this there will be not letup from the public. They should not be supra to the laws and wishes of the government and it's appointed officials.

  • Comment number 28.

    In a slightly different vein its mildly amusing that since Bob Diamond has become the CEO of Barclays they are considering moving to New York. I seem to remember another American heading Cadbury Tod Stizer who managed to get it sold off to Kraft an American company. Maybe its all part of an American conspiracy theory?

    The reality is indirectly Barclays through quantative easing has benefitted from UK tax payers bailing it out and ALL banks British or not operating here are benefitting by only paying British savers .5% interest on deposits whilst charging anything from 4.5% upwards the banks continue to treat customers as cash cows with scant regard for service, loyalty or underwriting their wreckless exploits.

  • Comment number 29.

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

  • Comment number 30.

    #16

    What are you doing hanging around on a kids playground?

    If the kids that bright he should be running Barclays! Mind you running a bank is such a tough job, where to move to? how much bonus to award yourselves.
    You woudn't want it to be run by volunteers, hell that might be real competition for Credit Unions.!!

  • Comment number 31.

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

  • Comment number 32.

    I know lets just say we will guarantee all risk?

    We can all borrow what we like and put it on the euro lottery. We can all be millwionaires Rodney.
    If Barclays or anyone else moves abroard, it is all just part of the free market.

  • Comment number 33.

    As effective owners of RBS and Lloyds, why have'nt we already broken them up? And rather than listening to any threats from them to relocate should we not be asking them to go far away and as soon as possible?

  • Comment number 34.

    To Average Joe, Economicslave, Another Engineer, Spike1606, et al

    Keen’s theory is that Banks create debt and then search for deposits after the event to ensure their fractional reserve ratio is met.

    Conventional theory is that fiat currency is the starting point for the expansion of money. The initial government introduced fiat currency being the original starting point of deposits and thereafter over generations of deposits and loans you arrive at our current position, where a deposit is used as a basis of a loan, which in turn becomes a deposit for new loan, subject to a percentage being held in reserve.

    The question I ask myself, is does it really matter, which of the two are correct?

    Evidence suggests that the net affect of the uncontrolled expansion of credit is the uncontrolled bust which follows it.

    I’ve posted links to the ‘positive money group’ in the past, and I believe they have a good point.

    But I have to admit, if it were me, I’d advocate a national banking service (NBS), after all we’ve got an NHS. I’d introduce a state bank, and then I’d gradually reduce the state guarantees given to the private banks to zero.

    I’ve said this many times, but I still believe it:
    The plain truth is, if the state (which is us) does not control the creation of money, then the state (which is us) can only ever be at the mercy of those who do.

  • Comment number 35.

    18. At 13:31pm on 31st Mar 2011, sandy winder wrote:
    Why is it with Mr Peston I never get the impression he is telling the whole story?
    ---------------------------------------------------------

    As his colleague Paul Mason pointed out on his blog today, BBC bloggers must have self-censorship training .

  • Comment number 36.

    #20
    Why should someone who has taken on a mortgage that they cannot repay be rewarded for their poor decision while someone else who has worked hard all their life just to keep a roof over their head and continues to live from month to month gets nothing?

    --------------------------------------------------------------------------

    Seconded, but sadly our UK gov't didn't see it that way and bailed out the banks anyway.

  • Comment number 37.

    Robert,
    Please excuse my memory if defective but did not HSBC repatriate a chunk of its Head Office function to Hong Kong some years ago? The world did not come to an end then.

    Does not Barclays already have 'firewalls' between some parts of its operations in the UK? And this may or may not be a good point at which to observe that RBS have not yet assimilated Nat West into their UK banking operation.

  • Comment number 38.

    Of course senior officials are working their nuts off to tone everything the Commission is proposing down. That's what these so-called public servants always do. They did it with regulation pre-crash, they will do it again now. Just as it is vital to understand that investment bankers are motivated by bonuses, it is important to realise that senior civil servants are motivated by avoiding conflict or the appearance of conflict at all costs. The system is such that they only get promoted if they avoid controversy (and therefore discomfort for colleagues).

  • Comment number 39.

    I think some sort of separation of retail and investment banking will happen, although I don't think anybody knows the exact consequences. There are two I will expect:

    First, an end to 'free' banking. That is, banks will start charging for ATM transactions, cheques, standing orders, etc in the way they always used to until; they could use cross-subsidisation.

    Second, I think they will seek to increase their margins. So a higher differential between the rate at which they borrow (ie what they pay their depositors) and what they lend (mortgages, etc).

    But the benefit to us all will be a more stable banking system.

    It's a trade off. But I hope nobody on this blog thinks that such major changes will he free.

  • Comment number 40.

    Are we surprised 'government officials' are trying to intervene and mediate - i.e. water down the Commission proposals?

    Not really - Gordon Brown, obscenely flattered and overly-influenced by City big-wigs, moved many more responsible Treasury officials aside and replaced them with 'secondees' from the banking, accountancy and business consultancy firms.

    Many of these may have returned to their parent companies to be suitably rewarded, but their invidious influence remains.

    Their first 'triumph' was the PFI/PPP initiative - now a national cashflow disaster for hospitals, schools and prisons

    Their next was 'light touch regulation' - which meant an emasculated governance regime could not prevent the banking crisis, or at least mitigate it in the UK.

    Now the worms are out again - trying to prevent the hands that really feed them being smacked firmly down and shackled to the principles of reponsibility.

    If there was an MI5 department which investigated penetration, undermining and espionage in Whitehall by the City it would seriously have its work cut out stopping this sort of financial treason.

  • Comment number 41.

    It still seems to me Bradford and Bingley Shareholders were mistreated by Gov't and shortselling hedgefunds alike.
    Leaves a bad taste in the mouth to hear how their losses on bad loans were actually far less than ASSUMED at the time.
    For Shame!

  • Comment number 42.

    Bit of a sore point the plane crashing into a skyscraper...even if it is a HSBC one!

  • Comment number 43.

    11. At 13:10pm on 31st Mar 2011, That_Ian wrote:
    Wouldn't creditors have no recourse whatsoever to the parent group? Sounds rather strange - though I'm not an expert on corporate law.

    - Company law is really rather simple. A company is a separate legal entity and is a person as much as you and I am. Never get into a lift with a lawyer or an accountant as they may hold incorporation documents thus going over the maximum number of persons allowed in the lift.

    Now, if your son racked up large debts - would you be liable? Well no as you are separate legal identities. Now what if your son wanted a loan and the bank thought he was a bit risky? Well you would guarantee the loan (sometimes directors have to take on personal guarantees for company debt). Then if your son decided to spend it all on wine, women and song - you would be liable. The same will happen with the banks. However, we're talking small creditors in the grand scheme of things not provisions for losses and shareholders (as the investment side would be separately capitalised).

    In saying all of this, it doesn't really matter as capitalism ceased to be last Saturday and now if we laugh at the idea of banks and rather put our feet up whilst our robots do all the work. Well that's what it's like in Hendon anyway.

  • Comment number 44.

    To be more on topic, with all the shenangians going on, the only thing to do is have proper regulation of those Banks Operations within the UK.

    The UK Gov't cannot control wheeling and dealing abroad.

    Spreadbetting (share trading on margin via bets on market price movement) and the securitisation of Loans of unknown quality are the real problems that need regulating.

    Profit related bonuses being paid by loss making companies, is of course ridiculous, but the Bankers clearly are too short term in their view to care less what people think of that.

    Shareholders (ie owners of Equity) need more protection from clique executive styles. The Shareholders in UK are mostly Pension Funds who seem to give carte blanche to managers, on many different issues, including remuneration.
    UK based and listed corporations could be regulated, foreign ones could not (by UK Gov't).

    Things could be done, corporate operations within UK can be regulated and subject to taxation on their UK activities or turnover, if the will to do it was there.

    The location of corporate headquarters is not necessarily of any relevance at all, as again LOCAL operations can be regulated.

    Where there is a Will there is a way.

  • Comment number 45.

    Robert, we need to split Credit Unions into two as well. They have the casino side of lending £200 to Mrs Miggins (who we all know isn't good for it) whilst simultaneously taking deposits of £5 from Mr Andover who only did it for the free fountain pen. These parasites must be split now.

  • Comment number 46.

    "You probably think that all sounds sensible. But the banks don't like it..."

    Enough said.

    Should they stay or should they go now?
    If they go there will be trouble
    And if they stay it will be double...

  • Comment number 47.

    Retail banking should be in public ownership, that way the speculators cannot get there sticky mitts on our hard earned cash , mortgage money etc.
    The investment banking arm should be a private company, all the high risk betting can then be done using shareholders money or anybody else that wants to take a punt or gamble.
    If they do not like it let them go overseas and risk some one else's life savings, they will soon run out of places to hide once everybody cottons on to whats been going on..

  • Comment number 48.

    "But the banks don't like it, because if they have to pay more to borrow, then either their profits are squeezed or they have to pass those increased costs on to customers." - or pay their bankers less!!

  • Comment number 49.

    "The truth is that we don't really have the numbers to make a quasi-scientific analysis of the benefits and costs. So, paradoxically for an industry that prides itself on its facility with numbers, this is a debate conducted largely in fatuous emotion and generalisations."

    Somehow I don't think this situation will ever change. So its probably why they need paying so much because of the emotional strain and lack of evidence to make reasoned decisions. The good news is that there is evidence from Ola the chimp outperforming most banking analysts by throwing darts at a board to decide what to invest in. Perhaps London Zoo could be a new financial centre?

  • Comment number 50.

    Robert,

    The banks are bluffing. They aleady rip everybody off and pass on none of any benefits of their size. Bring on the break ups. There are far more pressing problems about which you spoke earlier.

    Recently in Portugal the prime minister resigned when he could not force through the 'austerity' budget.

    What do you think the Irish people will do once they realise that their economy has entered the 'death spiral'; the point beyond the tipping point, where no level of austerity or sensible budgeting is going to allow just 4.5 million people with nothing but property deeds for houses built on a rainy wind swept island lost in the Antlantic Ocean, sufficient funds to buy food, clothe their children while still maintaining the impossible interest payments on a debt mountain many times the size of the entire GDP and running at hundreds of billions of Euros, owed mainly to Germans, French & Brits.

    Default is certain. The maths make it so. Particularly now the Euro interest rate is on the verge of being increased.

    On a related point. I will be renting a small house with 2 other waitresses who i work with from the middle of next month. Its a 3 bed victorian terrace house in London zone 3. £1,900 per month. Madness all round. The landlord paid £499k for it a few months ago and another £60k doing it up plus 3% stamp duty and no doubt legal costs (£580k all in the agent said). Its lovely actually. Brand new kitchen, bathroom with separate black tiled shower room , new carpets and even a shed in the garden. He is a tasteful man. By far the nicest place i have ever lived in. I'm so lucky.

    Not sure about the landlords business accumen though.
    £1,900 per month is £22,800 per annum. Thats less than a 4% gross return on £580k. Thats not even inflation and soon likely to be lower than the rate available from cash.

    He has to pay the agent some of the rent to manage the place, pay for maintenance and has borrowed to some extent to buy the place; based on the presence of the mortage possession clause in our contract, so has mortage interest to pay too. Who knows maybe 5% or so.
    So his net margin might be really low or even zero at a time when interest rates look like they are on the up and likely to push property prices down.

    He might lose his shirt on this deal.
    I guess he must be certain that house prices are going to keep rising.
    Which is my point. This certainty is what has caused this terrible mess and turned ordinary sensible people into landlords. My landlord appears to be a ill informed sheep jumping upon a bandwagon on its way to the slaughterhouse (See Ireland). On the other hand at least he can tell himself he is not a lowly tenant.

    Hey what do i know i'm just a waitress about to be living in a half million pound 2 up 2 down in London while the owner is squeezed until he squeels.


  • Comment number 51.

    jeffa4444 said:

    'ALL banks British or not operating here are benefitting by only paying British savers .5% interest on deposits whilst charging anything from 4.5% upwards'

    I don't know much about Uk bank funding models, but just checking the internet it seems to me that banks are paying 3.5% plus on longer term fixed deposits - not 0.5%. And these longer term fixed deposits are the ones that most closely match the long term fixed mortgages they lend. So I'm not sure the margin is as huge as you suggest.

    They certainly charge higher rates on short term overdrafts and personal loans, but those are the advances with much higher risk profiles, higher default rates and require higher operational costs to run.

    But it strikes me that the repeated assertions I read that banks borrow at 0.5% and lend at 4.5% is rubbish.

  • Comment number 52.

    Poor old L from H still being ripped off?

    How much is your bank making out of you?

  • Comment number 53.

    Barclays and HSBC are good banks, and the likes of Bob Diamond and co obviously know what they are doing.
    As a Barclays customer, I have always found it to be excellent, with friendly and efficient retail staff, and never a bank charge or a mistake.
    I join in the howls of anguish on executive pay ocasionally, but apart from that, I would be sorry to see its head office go abroad.
    But even the bosses of the biggest banks must heed the publics cry for some protection against major losses.
    Ironically, the greatest protection of all may have just passed.....the threat of near collapse, which must have knocked some sense into the most reckless of bankers.
    Hard-nosed common sense in banking may be the order of the day for the next ten years.....until someone starts another round of "property fever".

  • Comment number 54.

    I'm sure all the Bob Diamonds of the world will put their bonuses together and buy an island where they can happily live together. Then we can get one of the Libya no-fly zone planes to make a detour...

    "21. At 13:40pm on 31st Mar 2011, AqualungCumbria wrote:
    I wonder how many UK customers would be lost to these Banks if they continue to work in a way that is perceived to be riskier than there competitors.

    I certainly wouldnt want to bank with them , but i made that decision some time ago , i would hope many more would see the light and take notice of how they treat us with contempt when without our guarantees they would have ceased to exist.
    "

    I was wondering if it was possible to factor in the real advantages of investing in money where the bank was based in the UK even if the return was slightly less - if only in broad terms. Indeed whether we could factor in the national economic benefits of buying the same product at a slightly higher fee based on the tax contribution of the manufacturer.

    I, myself have been with a building society for many years, and they have never let me down, having banked with both Midlands (HSBC) and Lloyds prior to that.

  • Comment number 55.

    51. At 15:27pm on 31st Mar 2011, JustKBO wrote:

    "But it strikes me that the repeated assertions I read that banks borrow at 0.5% and lend at 4.5% is rubbish."


    Don't let the facts spoil a good story - it would mean that you couldn't then come up with the following rhetoric:

    "the banks continue to treat customers as cash cows with scant regard for service, loyalty or underwriting their wreckless exploits."

    In the past, I've made the same argument as you just did, regarding default and operating costs, as I prefer to deal with the realities of the situation. Unfortunately, "red-top" mathematics will always win out....

  • Comment number 56.

    50. At 15:05pm on 31st Mar 2011, RedHairedGirl wrote:

    Not sure about the landlords business acumen though.

    He may also be using what appears to be a loss on that property to offset against tax liabilities elsewhere, as you say the figures seem madness, but these are crazy times.Without more detail we will just be left guessing.

  • Comment number 57.

    #20. rbs_temp wrote:

    "#3. John_from_Hendon wrote:

    The solution to the crisis must be about writing off debt...

    Do you mean personal and household debt? If so, how do you propose we manage the writing-off of debt such that we do not reward the reckless and penalise the thrifty?"

    You are being ingenuous of course!

    Capitalism is red in tooth and claw and borrowers who cannot repay their debt or continue to be able to service their debt must suffer the consequences under law as you very well know. "If you do not pay your property is at risk"!!!! They will forfeit their homes which will be sold at a knock down price and net loss will fall upon the lender and the shareholders of the imprudent banks and in extremis the tax payer. That is how the system works as you well know!

  • Comment number 58.

    45. At 14:50pm on 31st Mar 2011, Lindsay_from_Hendon wrote:

    Robert, we need to split Credit Unions into two as well.

    As far as i understand it , they take £5 from 45 customers to cover Mrs Miggins debt which seems a far more sensible arrangement than just inventing the money .

  • Comment number 59.

    Does the alleged cost of the banks leaving the City include the net gain of *not* having to pay a future bail out?

    Does it include compensation for the incredible levels of asset inflation that have distorted the South East's housing market for the last two decades?

    Does it include the effect of improved access to credit for smaller businesses, because retail banks will be forced to lend to make a profit?

    I'd estimate that as a net gain to the economy of at least a few tens of billions - if not more.

    Of course Osborne won't want to upset his old school chums. But this is still a democracy of sorts.

    One or another, no matter what he thinks now, the decision isn't going to be his to make.

  • Comment number 60.

    Let HSBC and Barclays move abroad, but at a cost of losing any financial guarantees from UK government.
    The British public will remove all retail deposits from said banks. I know people who held deposits with Icesave, they are NEVER going to make that mistake again! RBS and Lloyds will instantly pick up enough deposits to capitalise any part of their business, their shares will rise, everyone in UK benefits.
    Please UK govt return housing mortgage business to 'local' building societies with even bigger capital guarantees to prevent housing bubbles, and gently introduce taxation to interest of buy-to-let mortgages, a great earner for the IR.
    UK government hold all the power, it reminds me of Mrs Thatcher and the mining unions, guess who eventually won that struggle....
    hopefully GO and Vince will tough it out and show some morality in this sorry disaster tale of banking and government.
    and creditunionhero, don't go to Australia, become an MP. They should all be volunteers, resulting in a lot more work and more sensible legislation. This current greedy cohort of career politicians need to stop whingeing and go and get proper jobs!!!

  • Comment number 61.

    I think we are all (.... and by that I mean 99% of the population on the UK) counting on the Independent Commission on Banking not to sell out and be "captured" by the bankers, as so many regulatory regimes have been.

    The banks are clearly getting worried, and are now pinning their hopes on pure capital ratios, meaning yet another work of imagination and delusion from those people in Basel.

    But this would be a catastrophe for all non-bankers of the world (....99.99% of the global population?).

    Robert, you have not mentioned Andy Haldane's paper for the BoE on 23rd March, in which he gives the lie to this and points out that:

    "regulatory capital ratios do about as well in predicting crises as a coin toss"

    see https://www.bankofengland.co.uk/publications/speeches/2011/index.htm

    So if the ICB concentrate on capital ratios, then we for sure know they have sold out.

    But hear this......I still don't trust bankers as far as I could throw them.

    I still would not trust a bank to, as you say "erect a super-strong steel and concrete firewall in the middle of a building".

    Based on their behaviour to date they would pretend that this is the case, but then when the dudu hit the ventilation equipment, you'd suddenly find that this firewall had disappeared, and that the tax-payer was still in for it.

    The objective must be a total separation of retail and investment banking.... and nothing less.



  • Comment number 62.

    45. At 14:50pm on 31st Mar 2011, Lindsay_from_Hendon wrote:
    Robert, we need to split Credit Unions into two as well. They have the casino side of lending £200 to Mrs Miggins (who we all know isn't good for it) whilst simultaneously taking deposits of £5 from Mr Andover who only did it for the free fountain pen. These parasites must be split now.

    I just thought it was soo good i had to repost it. i may even get it framed so i can have it on my desk

  • Comment number 63.

    Banks can dodge anything they don't like, but obviously what banks are doing right now is not solving the economic crisis.
    Mervyn King seems all over investment/retail split.
    George Osborne is standing behind the banking review.
    The point: A fundamental RESTRUCTURING of the banking sector is needed.
    Hoo-ray for Mr King!
    Surely Mr King knows that the Independent Commission on Banking (chaired by Sir John Vickers) is poised to make its interim recommendations to the government next month, but the Commission's views seem to fall short of a narrow banking model.
    Mr King is understood to have made the case for narrow banking – essentially a UK replica of the Glass-Steagall Legislation introduced in the US after the 1929 Wall Street crash. I couldn't agree with him more.
    How far will John Vickers go?
    “Subsidiarisation” i.e. investment banks ring-fence their high street and investment banking operations from retail banking to make them safer. Hmmmmm...
    George Osborne seemed to go out of his way to signal the view that the commission’s recommendations could be sidelined was simple wishful thinking. Mr Osborne was convinced that Sir John’s thinking was “going in the right direction”.
    Hoo-ray for George Osborne!
    HSBC apparently is discussing with shareholders whether it should move HQ from London to Hong Kong, as have UBS and Standard Chartered, but who's to say that Hong Kong will want them, and let's face it - It's a whole lot of trouble to move!
    The US has already firmly rejected a return to Glass-Steagall. That alone should signal the UK, as well as the International Community that a form of Glass-Steagall is vital to economic recovery.
    In the United States, the banks run the economy...

  • Comment number 64.

    Either cough up or get out, simples & if you get out then there should be a major snatch to re-gain some of what has been lost to UK economy etc via destruction to property prices & jobs & tax income resulting from banks negligent behaviours.

  • Comment number 65.

    #57. John_from_Hendon wrote:

    Capitalism is red in tooth and claw and borrowers who cannot repay their debt or continue to be able to service their debt must suffer the consequences under law as you very well know. "If you do not pay your property is at risk"!!!! They will forfeit their homes which will be sold at a knock down price and net loss will fall upon the lender and the shareholders of the imprudent banks and in extremis the tax payer. That is how the system works as you well know!

    Then please explain to me what you mean when you say that "The solution to the crisis must be about writing off debt...". I really don't understand what you are proposing.

  • Comment number 66.

    Do the retail arms have access to borrowing at base rates that the investment arms use to play the carry trade? I assume this doesn't happen since nobody ever mentions it.

  • Comment number 67.

    "45. At 14:50pm on 31st Mar 2011, Lindsay_from_Hendon wrote:
    Robert, we need to split Credit Unions into two as well. They have the casino side of lending £200 to Mrs Miggins (who we all know isn't good for it) whilst simultaneously taking deposits of £5 from Mr Andover who only did it for the free fountain pen. These parasites must be split now.
    "

    Are they too big to fail then?

  • Comment number 68.

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

  • Comment number 69.

    The challenge for the banking community is whether or not they are capitalists.

    If they are the capitalists they claim to be then break up for the sake of competition and a shrinking in size so they become small enough to fail should excite, stimulate and present opportunities to show their capabilities. Many in the City who already face such conditions will relish the prospect.

    If they are not capitalists but monopolists then they will have to be dragged kicking and screaming into reform. This will be an interesting exercise for the rest of us to see just what the bankers really are.

    I think they will fail in this simple test as the current system of a taxpayer guarantee and the prospect of a bail out because they are too big an institution within the economy at large to be allowed to fail is a place of immense benefits. This is nothing more than a license to print money.

    The reality is that our economy cannot afford banks as they are currently structured. They have distorted the economy not only by shrinking it in the immediate term but in the long term they have also eroded the productive base in the real economy to a dangerous level.

    If they say they want to leave and go elsewhere then their operating licenses should be revoked immediately. Two can play at being Mr. Nasty. Furthermore, before they leave the auditors need to be allowed full scrutiny of all transactions for the last six years plus one to ensure they conform to tax law and the appropriate regulatory standards.

    The simple truth is that the big banks are not to be trusted. They blew up the economy and were bailed out. There has not been one word of contrition from them at all. They think they have us where they want us. It is time for us to show them this is not the case.

    If the government does not stand up to the banks then we will have to keep going until we get another one with a backbone.

  • Comment number 70.

    We have to let the investment banks go (sounds like the kind of thing they would say to their employees). I know they contribute 50+billion in tax revenues every year, but it might just be that, after a painful adjustment, we could base the UK economy on something other than casino capitalism. After all, look at countries like Norway. Far richer and happier than we are, yet not an investment bank in sight. In fact, is there a direct correlation between the size of a country's investment banking sector and the misery of its citizens? PS I work for an investment bank.

  • Comment number 71.

    #56. AqualungCumbria wrote:
    He may also be using what appears to be a loss on that property to offset against tax liabilities elsewhere, as you say the figures seem madness, but these are crazy times.Without more detail we will just be left guessing.
    --------
    Using a tax losss is almost always only going to give relief at a maximum of 40% or 50% of the loss, so the landlord's business acumen would still be pretty low. There seems to be a general belief that tax losses somehow can convert water into wine, which is simply not the case in most circumstances.

    It is far more likely that the landlord is under the delusion that property has already gone down in price, so now must go up. A commonly held view, but one which may well be very optimistic.

  • Comment number 72.

    I'm confused as to why the banks think that moving head office would help. Surely moving their head offices overseas wouldn't suddenly allow them to start using UK retail deposits to fund their investment banking arm?

  • Comment number 73.

    Perhaps we all need reminding that if Barclays and HSBC were the only two banks in the UK, there would be no spending cuts, no job losses, no "desperation" interest rates, and no tax rises.
    In fact, the "property fever" that caused most of the wreckage, may never have happened.
    Barclays and HSBC may have been "drawn into the mess" to a small extent by the "competition to lend" that is present in such disastrous asset-bubbles.
    (If a sensible bank won't lend it to you, just go to the bank-of-fools down the road.)
    Of course Barclays and HSBC are making large profits from the current interest rate set-up, but that was put in place to enable the bust banks to recover. Both of these banks do not deny this.....that's life.
    And credit-union-hero should think twice about Australia, whose banks are currently involved in wild over-pricing of ordinary Australian property, and seem to have forgotten that the average Aussie salary is 38k dollars....you would think that they would have learned from the experience in Europe and North America.
    Flogging aluminium and gas to China cannot save anyone from the sort of losses that banks can create in property over-pricing.

  • Comment number 74.

    Damage was done 2 or more years ago
    Just need the the poor (no political clout, they deserve everything they get) to pick up the tab, (what do they matter anyway?) Have a nice day..
    Ironing, £10 per hour.

  • Comment number 75.

    #71 and #56 check to see if there are any 50 quid notes on the washing line

  • Comment number 76.

    JustKBO wrote:
    jeffa4444 said:

    'ALL banks British or not operating here are benefitting by only paying British savers .5% interest on deposits whilst charging anything from 4.5% upwards'

    I don't know much about Uk bank funding models, but just checking the internet it seems to me that banks are paying 3.5% plus on longer term fixed deposits - not 0.5%. And these longer term fixed deposits are the ones that most closely match the long term fixed mortgages they lend. So I'm not sure the margin is as huge as you suggest.

    They certainly charge higher rates on short term overdrafts and personal loans, but those are the advances with much higher risk profiles, higher default rates and require higher operational costs to run.

    But it strikes me that the repeated assertions I read that banks borrow at 0.5% and lend at 4.5% is rubbish.


    I didnt say banks borrow at .5% I said they pay savers .5% and I also said rates start at 4.5% so as another example go look at the rates they charge for credit cards, or for personal loans etc. The millions of people getting .5% with billiond deposited are NOT costing them 3.5% so dont distort the picture by giving one inter-bank rate.

  • Comment number 77.

    "62. At 16:54pm on 31st Mar 2011, avalanche-jersey wrote:
    45. At 14:50pm on 31st Mar 2011, Lindsay_from_Hendon wrote:
    Robert, we need to split Credit Unions into two as well. They have the casino side of lending £200 to Mrs Miggins (who we all know isn't good for it) whilst simultaneously taking deposits of £5 from Mr Andover who only did it for the free fountain pen. These parasites must be split now.

    I just thought it was soo good i had to repost it. i may even get it framed so i can have it on my desk
    "

    A simple question. Whats the difference between a credit union and a retail bank (after splitting from the casino)? Both support lenders and savers.

  • Comment number 78.

    Wherever they flee, they will not escape the debt they both owe and also own.

    In November 2010 a PriceWaterHouseCoopers report published by the Guardian provided some rather startling information about debt. Its assessment then was that excluding the financial sector - the total debt for the UK was £7.5 trillion or 540% of GDP and they also stated that they expected that to rise to £10 trillion within 5 years (I think they're being conservative there).

    In terms of what we know, this breaks down into roughly £1.1 trillion for government public sector debt and £1.4 trillion for private debt. But that only accounts for £2.5 trillion in total. It seems that there must be another group amongst us that is £5 trillion in debt. Well that can only be private sector business! The government and consumer seem positively frugal in comparison. Figures from 2007 stated that there were 4.7 million businesses in the UK. If one does the maths to work out the average business debt - it is a little over £1 million pounds per business (someone should check this as its tough keeping count of all the zeros in these crazy sums).

    It seems to me that business debt is the elephant in the debt room that everyone is ignoring. The coalition obsesses with their paltry deficit, yet somehow think that a group that holds 5 times that debt (but only employs 3.6 times the amount of staff -hmmn what does that tell us about efficiency) will somehow have the resources to save the economy?

    If the government took the most extreme measures and eradicated the public sector debt entirely - that would only reduce debt from 7.5 trillion to 6.4 trillion (given an unimaginable stability in these figures). You can't trust the conservatives or labour with the economy and you can't even trust business to produce wealth any more it seems, all sectors just borrow more and more to maintain a social fiction of economic prosperity.

    Today Oddbins were put into administration and there was apparently a 'shock' rise in the amount of home repossessions - and this is before any interest rate rises (with economic recoveries like these who needs recessions?).

    This seems to be the end game for consumer society as it just ends up with everyone going into liquidation. Even with base rates at their notional historical low of 0.5%, the dominos have started toppling and there will perhaps be no stopping this now. It doesn't matter where banks run to they can't hide from this any more than they can hide from their US debt exposures which is in all probability a great deal larger. The stock markets seem oblivious - its gin and toxics all round.

    https://www.guardian.co.uk/business/2010/nov/09/debt-timebomb-harm-economy-decades

  • Comment number 79.

    It goes without saying that if they did decide to move abroad then the UK retail banking sections would have to be separated out. This is so that uk deposits and loans could be protected. Never again should there be a case like Lehman. Where the US parent company ordered all the UK assets stripped hours before they went bankrupt.

  • Comment number 80.

    Maybe I have got this wrong. But if Barclays were Head-Quartered in another country we would only miss out on the corporation tax? Wasn't it in the news a few weeks ago that despite them announcing billions of profits and bonuses that they only paid 1% corporation tax?

    And all the employee salaries and bonuses would be UK taxed as they are resident here?

    So, we allow another country's tax payers to be the bottomless pit rescuer of Barclays, and sacrifice only 1% corporate tax on their profit. Sounds like a good deal to me. They have a balance sheet equal to our GDP and will be a massive liability to the UK when the next phase of Western Capitalism hits.




  • Comment number 81.

    "53. At 15:56pm on 31st Mar 2011, stevewo wrote:

    Barclays and HSBC are good banks, and the likes of Bob Diamond and co obviously know what they are doing.
    As a Barclays customer, I have always found it to be excellent, with friendly and efficient retail staff, and never a bank charge or a mistake."

    And yet Barclays are now the most complained about bank in the UK, which to take the title from Santander means they must be spectacularly awful.

    https://www.bbc.co.uk/news/business-12908236

  • Comment number 82.

    Richard Leon at 59 I think you might be imagining conspiracies where none exist. You say:

    'Of course Osborne won't want to upset his old school chums. But this is still a democracy of sorts. '

    Osborne went to Eton (as Ed Balls likes to remind him, in case he ever forgets). Can you name a fellow old Etonian who is currently running any of the UK's major banks? Bob Diamond must have slept in the school's New York dormitory, Douglas Flint would have been in Eton's Scottish wing, Antonio Horta-Orsorio must have been in the school's Spanish house. But even if, as you claim, they were all at the same school at the same time they would probably only ever have spoken through international telephone conference calls.

    Or this is just some typical ill-informed cynicism.

    There are plenty of things to be justifiably angry about and good reasons to advocate change. But blaming it all on cosy relationships between school chums is missing the point altogether. Oh and wrong.

  • Comment number 83.

    United dreamer at 77:

    'A simple question. Whats the difference between a credit union and a retail bank (after splitting from the casino)? Both support lenders and savers.'

    I'm not sure. But I can phone firstdirect at 11.30 pm on a Sunday and make instant transfers, pay bills, get transaction details, etc. Then I can go to my local branch of (any bank actually) and draw cash from the ATM. I get free standing orders and direct debits paid, I get a cheque book, cheque guarantee card and I have access to a range of lending and savings products I can choose to use or not.

    So probably banks and credit unions are almost identical.

  • Comment number 84.

    58. At 16:20pm on 31st Mar 2011, AqualungCumbria wrote:
    > As far as i understand it , they take £5 from 45 customers to cover Mrs Miggins
    > debt which seems a far more sensible arrangement than just inventing the money .

    Sorry if this has been covered before, but isn't this the same as normal bank lending? EG we have £225 assets so we can lend £200 of it out.

    I thought the main difference between credit unions and banks was structure/ownership. Rather than mechanics of lending. But happy to admit that am not really familiar with CUs (have never had an account with one)

  • Comment number 85.

    Why don't we set up a bank. It seems that super-normal profits are certain and that any idiot can do it (Per Jacques). Obviously there's the moral problem, but we can always just give away all the money once we've undercut the other banks and forced them out of business. Right?

    Downside: We might be lynched.

  • Comment number 86.

    76. At 18:32pm on 31st Mar 2011, jeffa4444 wrote:
    JustKBO wrote:
    jeffa4444 said:

    "..as another example go look at the rates they charge for credit cards, or for personal loans etc. The millions of people getting .5% with billiond deposited are NOT costing them 3.5% so dont distort the picture by giving one inter-bank rate."

    --------------------

    Within a credit card customer rate are a number of factors to any lender that reduce the customer interest rate down to the eventual profit margin.

    Firstly, not all cardholders are paying interest (around 65% do, the other 35% pay off balances before interest can be applied).
    Secondly, the lender has to fund these balances - currently between 2% and 3%
    Thirdly, default rates continue to run at high levels - around 4% to 5%
    Fourthly, operating costs are allocated to the cards business - any figure from 1% to 3%
    Lastly, tax is payable on any profits, which in % terms would therefore be somewhere between 1% and 3%, compared to the customer interest rate of 17.9%.

    While I've omitted fees etc from this, I've also omitted other costs (ie incentives, loyalty schemes, etc).

    --------------------

    As an aside, the interesting point will be when the BoE raises interest rates - how will the major banks adapt their savings rates and lending rates? If savings rates increase while lending rates stay flat, then they're doing the right thing for the customer.


    So the original 17.9% (as a rough average) customer interest rate is cut to a much smaller post tax profit figure

  • Comment number 87.

    Sounds like there is concern that the Independent Commission on Banking might actually stop the internal cross-over of capital between retail and investment banking.

    Let's face it that in terms of the major four big banks ... these are heavily complex internationalised and not traditional UK banks and any proposals for their re-structuring will mess up their super cosy multi-national inefficient high cost operations that create lots and lots of local and regional internal cost centres supporting various size remuneration and bonus troughs all over the globe.

    Restructuring will also affect their ability to pay or avoid local taxes in multiple tax jusrisdictions and avoid paying the full UK corporation taxes.

    1) It will be interesting to see if the Commission take the view that a basic bank that an ordinary person in the street recognises with ordinary services and activities ... is still defined as e.g. a 'retail bank' ... and also

    2) Will the Commission take the view that these reforms should be actioned without international consensus given that the UK is more at risk and unbalanced by its banking and finance than any other developed country in the world.

    3) Will the Commission examine why the banks stay in the UK when they could have set up/ moved their HQ operations anywhere else in the world - perhaps the reason is that in many countries ... they would not have been too big to fail and if these banks had done in China what they have done in Britain - many of their executives would now be in jail and some would have been lined up against a wall and shot.

    Moving overseas for these banks is not as difficult as I think that RP makes out as the global banking structure is there ... what keeps/has kept these banks in the UK is the 'joining at the hip' between these banks and many in the Uk and global political/business/establishment elite ... and a soft business environment and collosal UK over-privilege bestowed on UK banks by history and weakness of UK constrictution, law and business regulation ... an extremely cosy, soft, favoured, elitist and very sophisticatedly corrupt UK financial setting as ripe for domestic and global exploitation with excellent access to tax havens.

    I fear as do many others that the Commssion will not be focussing on these substantial underlying issues (there are other such issues also) and questions of the opportunity cost of UK domestic capital that is being lost from and is starved from our UK domestic economy by these large UK based banks that are crossing-over UK capital from UK retailing banking into intenationalised investment banking via devious global corporate structures.

    These banks are panicky because although there is a risk that the Comission might change their structure that creates inherent costs of restructuring ... but if the banks threaten a move overseas then there are not many places currently as soft on them as the UK ... and some of the possible HQ locations will mean that their tax dodging is either not as profitable and/or is prohibited.

    If the banks make super profits by international exploitation and pay not enough tax in the UK then arguably ... better rid of them because of the risk to the UK taxpayer. Let us be clear about this ... when the banks NOW make £x billion ordinary net profits after tax ... how much of this money actually benefits the UK and goes back into the mainstream UK economy?

  • Comment number 88.

    These banks do not pay full corporation tax as they appear to have been able to offset their losses to reduce their tax bill so I am sceptical that moving overseas is going to save them tax so as Robert says it is obviously the thought they may be more strictly regulated that is scaring them into threats to move. The status quo is not good enough though and never again should we be put in the position of having to bail them out. So the only solution is to either break them up or divide them so that parts of it can be wound down with the retail side which holds our savings, loans etc being more strictly regulated. The FS guarantee should also go. I have been dividing any savings we have between four different organisations and am ignoring the guarantee and using supermarket savings accounts and national savings certificates. In other words I am not at all sure that the banking crisis is over and we still seem to be in the same position so something will have to change. We all have to get used to living within our means also and stop borrowing. House prices also need to come down and interest rates should rise.

  • Comment number 89.

    You seem to have let out an important par of that deal. RBS, with election coming soon our dear politics will want to sell off their shares and make a very nice profit with an even nicer timing.

    RBS value would be greatly affected by such a break up it would be economical and political suicide to put this at risk, would it not?

  • Comment number 90.

    jeffa4444 I think it's time for you to stop digging.

    'The millions of people getting .5% with billiond deposited are NOT costing them 3.5% so dont distort the picture by giving one inter-bank rate.'

    The 3.5% I quoted is not 'one interbank rate'. It is the rate offered by one high street bank to ordinary depositors willing to tie their money up for 5 years. That is, it's the sort of deposit banks want in order to be able to lend long on fixed term mortgages.

    So I'm not distorting the picture as you suggest. I'm quoting facts. I suspect you are repeating an often repeated myth that banks get all the funds they need to lend by paying just 0.5%. They don't. It's really is a myth. Don't be taken in by it.

    Do banks make a margin on what they borrow in order to lend? Of course they do. But their cost of funds isn't 0.5%.

  • Comment number 91.

    Juliet150

    A couple of points.

    Yes, banks can offset losses from previous years for tax purposes. But so can every business in the UK. The banks just happen to have some big ones.

    The tax take they don't like is the banking levy. They don't mind paying it against their Uk assets. What the likes of Standard Chartered really don't like is that the UK government plans to take the levy on their Asian assets - in addition to anything the Asian authorities themselves might take. And Standard Chartered is a predominantly Asian bank. So merely by relocating their registered HQ to Asia they immediately save themselves 90% of the UK's banking levy and only pay it on their relatively tiny Uk assets. Corporation tax isn't the issue - its the banking levy and the fear that UK regulators might force them to split their operations whilst, say, Singapore wouldn't.

  • Comment number 92.

    #65. rbs_temp wrote:

    "#57. John_from_Hendon wrote:

    Then please explain to me what you mean when you say that "The solution to the crisis must be about writing off debt...". I really don't understand what you are proposing."

    I am not proposing anything I am outlining the existing law!

    You don't, or can't pay for your loan - RBS (or whoever) then repossess the secured property under the mortgage deed. They flog it off for what they can get and WRITE OFF the loss! That is the law.

  • Comment number 93.

    Liverpool's sponsor wants the club to sign Asian stars to help tap into commercial opportunities in the region.

    Standard Chartered sponsorship chief Gavin Laws thought it was "not that important" if Liverpool once again miss out on a place in European club football's most prestigious competition because matches are played when the bank's target audience in Asia is asleep.

    He also said that the club's struggles on and off the pitch this season had actually benefited his company.
    "I would have thought that Liverpool have had more exposure around the world this season than anybody else......without the turmoil at the club there wouldn't have been [the publicity]," he said.

    https://news.bbc.co.uk/sport1/hi/football/teams/l/liverpool/9442542.stm

    Typical self centered thinking that is endemic in banks..and with the following comment I doubt he will have many fans at Anfield ..

    "They are a mid-table team with an outside chance of getting into the Europa League again."

  • Comment number 94.

    Let them go, break them up because I do not care where they are. My mattrass is getting thicker by the day and at the same time more comfortable.

  • Comment number 95.

    An excellent piece from Mr Peston, he illustrate's lucidly how the dice are loaded for and against our 'Big Banks', especially dealing with their lack of desire to leave and relocate from the UK. I hadn't realised the enormity of our (taxpayer) guarantee to the banks who are domicile in our country, and how damaging to these banks it would be to leave the reassurance of their way of trading in the UK haven, to move elsewhere and pay more for their trading habits. It therefore vital that our government put the safety of the British economy beyond doubt by segregating investment banking from retail banking, by resisting to the powerful voices and lobbying from the bankers, and proceed with ring fencing the liability of these ' dual providers'. The cries from the banks about passing on costs to the consumer is spurious, because as everyone knows, we have seen are bank charges rise much greater lately due to these bank's refilling their coffers at public expense. Having your cake and eat it seems to be the order of the day for these banking folk. We must all put pressure on our politicians to ensure no further tax money goes into supporting these bloated bank's, who are after all, supposed to be paragons of privately run business. How can that description fit if public money has to used to bail these fat cat's out. This is not what I call a private business - more like part subsidised, part nationalised gravy train. Let us hope our govt put aside their post - politics job prospects with these institutions, and make them stand on their two feet, because my wallet is now closed!

  • Comment number 96.

    85. At 19:36pm on 31st Mar 2011, Dale_Lemma wrote:
    Why don't we set up a bank. It seems that super-normal profits are certain and that any idiot can do it (Per Jacques). Obviously there's the moral problem, but we can always just give away all the money once we've undercut the other banks and forced them out of business. Right?

    Downside: We might be lynched
    --------------------------------------------------------------------------------
    Wrong. Banking is a service industry. Trying to serve customers while sawing off your leg is a suicide industry.

    So, not lynched but personally liable for quite a while.

    That said, this one of the solutions to recovery. Go back to small and start again. If HMG were smart they should be encouraging the building society industry.

  • Comment number 97.

    1. At 12:27pm on 31st Mar 2011, Lindsay_from_Hendon wrote:

    "...It is nice to see you write an article about banks Bobby P..."

    +++++++++++++++++++++++++++++++++++++++++++++++++

    It's nice when someone can get paid for his hobby.


  • Comment number 98.

    Given that all four of the UK banks that failed did so because of aggressive, high risk and poorly managed retail and corporate lending, how would ringfencing retail and investment banking prevent such a crisis happening again?

  • Comment number 99.

    The Government are obviously on the horns of a dilemma regarding the regulation of major banks and specifically dealing with the problem of having to bail them out in the event of failure. When asked about this by the Parliamentary Select Committee Barclays’ new CEO Mr Diamond simply stated that banks should be allowed to fail. Why then not follow his advice?

    This might be managed by the Government legislating that the only banks it will underwrite will have to conform to a new strict code of conduct aimed at protecting savers and other retail customers and removing a bank’s freedom to participate in high risk speculation that potentially generates huge profits and bonuses for staff, whilst at the same time exposing the bank to an unacceptably high risk of failure. There would have be a transition period, say three years for this policy to be fully implemented.

    The banks would have to decide within a shorter period, say one year whether they want to be underwritten by the UK Government and abide by the new code of code of conduct, or continue to operate under the current regulations without the guarantee of a Government bail out in the event of failure.

    Once the banks had made their decision their customers have the remaining period (two years) to decide whether they want to move their money to banks governed by the new code of conduct, and effectively underwritten by the Government, or continue to use one of the less regulated banks but run the risk of losing their money in the event of a bank failure.

    This will address the banks’ opposition to being split in two by Government diktat; it will also eradicate the competitive advantage the banks currently enjoy over other financial institutions because of being effectively underwritten by the government. It will also get the government off the hook of driving global banks overseas by uncompetitive legislation.

    The choice will be the banks and ultimately the customers on where they want to put their money.

  • Comment number 100.

    Stupid and pointless question. The banks, broken up or not, will carry on operating as a dangerous cartel gambling and paying itself hugely inflated 'wages' and collosal 'bonuses'. Nothing our government can do UNLESS it starts to tell the banks we own how to operate - something it is clearly unwilling to do...
    "we can't stop them paying bonuses" - how about as the largest shareholder just saying NO.
    "we need them to have the best people" - how about recruiting some brains instead of the same failed bankers that operated at the start of the problem
    "we can't make them lower interest rates to business" - er you are the government, you own them, you can make them
    "they are lending" - er, no, clearly they are not. if they are giving loans to 80% of those that apply then maybe the interest rates being so ursurous is preventing companies from applying - I certainly decided that closing two companies in the last 18 months was the only viable option as credit was so expensive it was not justifiable.

 

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