Has Vickers missed the target?

12th September 2011

The Daily Mail's veteran City commentator Alex Brummer suggests that the Government has given in to intensive city lobbying.

One of his main criticisms is that we still do not know what went wrong. He writes: "There has been no thorough going inquiry into the banking crisis which is the greatest financial event to hit Britain since before the first world war. In the US there have been two thorough going investigations and a 2,000 page plus reform bill which incorporates some separation of activities. The Financial Services Authority report into the Royal Bank of Scotland (at its peak the world's largest bank and now 84pc owned by us the taxpayer) is still unpublished nor have the commissioned forensic accountants reports into the failures HBOS and Bradford & Bingley. So the ICB has proposed changes without really knowing what went wrong. The process is frankly bonkers."

Here Jo Johnson writing on The Financial Times suggests politicians may regulate in haste and repent at leisure and, then, makes exactly the same point as Brummer.

"The creation of more "narrow" banks through ringfencing would not head off any financial crisis confined to the retail banking sector. In the recent crisis, a number of such banks – including, for example, Northern Rock, Bradford & Bingley and HBOS – not only failed but turned out to be systemic in death. Nor would a ringfence arrangement have prevented the crash of Lehman Brothers, which would have been entirely outside the ringfence. Indeed, that is why the focus of the international regulatory response has been on enhanced liquidity and capital."

From the left, the New Economics Foundation is in similar territory though more broadly sceptical about banking altogether.

Wrting on the Compass Online Tony Greenham, head of Finance and Business said:

"The ICB's report is a welcome official recognition that the system is bust. But the arguments against a full split are unconvincing. We know that full separation works – it worked for most of the last century in the US. This bureaucratic compromise is uncharted territory, and with ample time for the lobbyists to get to work there can be little confidence that it will be effective enough."

"This report does not deliver a safe and useful banking system. We have had no proper investigation into the causes of the crash, or into the conduct of the banks leading up to it. There is insufficient consideration of the broader public benefit, and nothing to curb the socially useless excesses of investment banking."

The question has yet to make it into political debate but as the Government mulls its response, it may become an increasinly hot topic.

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