15th November 2012
The Prime Minister had to choose his words carefully this week. In a speech to the great and good of the City of London at the Lord Mayor’s banquet, David Cameron chose to hit out at banker bashing warning that the bashers risked trashing the UK economy.
The Prime Minister said: “Those who think the answer is just to trash the banks, would end up trashing Britain. I say, recognise the enormous strength and potential of our financial sector, regulate it properly and get behind it.”
Even for such a consummate communicator, it represented quite a political high-wire act. His audience at the Mansion House may well have appreciated his words, but they may not have gone down so well in the rest of austerity Britain where most people believe it was bankers who created the economic problems.
But does Cameron have a point? Financial services firms certainly keep a lot of people in work employing around two million people UK wide, while crucially contributing a £46bn trade surplus with the rest of the world which is rather important given our relatively small manufacturing sector.
He wasn’t exactly advocating giving banks an easy ride. He added: “That is why we are taking tough action. Tough civil and criminal penalties for those who break the law, the most transparent rules on pay and bonuses of any major financial centre in the world and a proper programme to clear up the regulatory mess – including ring-fencing retail banking to protect it from the risks of investment banking. Put simply we need a regime where banks can fail without the need for taxpayers to bail them out.”
But such tough love isn’t easy to get right. As www.thisismoney.co.uk reported this week, a tough regulatory approach will contribute to London losing its status as the top financial centre in the world, certainly by numbers employed.
The City is likely to be surpassed by Hong Kong and New York according to think tank, the Centre for Business and Economic Research.
It says that London’s financial sector employed 280,000 people in 2011 compared with 262,000 in New York.
Jobs are falling in both cities, but New York will decline less with 254,000 employed in 2012 compared with an expected 249,500 for London.
As if to underline the decline, by 2015, the CEBR says London will have 237,000 employed compared with 249,700 in New York and 247,900 in Hong Kong.
The ‘special administrative area’ is benefitting from the increasing ‘internationalisation’ of the Chinese currency the renminbi. Some experts predict it will become another reserve currency.
Much of this is obviously outside the control of the British Government, because it reflects the increasing economic power and share of world trade held by China and other growing Asian countries.
But the CEBR also says it reflects the approach to domestic regulation. As UK banks continue to rocked by scandals and compensation claims, the regulatory line has remained a firm one.
Banks have not been broken up, but investment banking operations will have to be ring-fenced and capital shored up.
The problem is if you want to ease up on the banks because they employ huge numbers of people, or because, in theory, their loans to business underpin the economy, then you risk being accused of that now dreaded phrase from the Blair and Brown era ‘light-touch’ regulation.
Telling people to stop banker bashing is one thing. Creating a regime in which they can flourish while preventing another financial crisis and protecting consumers, is a much more difficult task. His speech is long over but in many ways the Prime Minister is still on the high-wire.