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Vickers is a cop-out – banking to stay dangerous

The Vickers report is a cop-out. Perhaps we should never have expected anything else, for two reasons. When bankers, as research has shown, now provide half of Tory party funding, it is highly unlikely that a Tory Government will set up a Commission on Banking that significantly penalises banking interests when that might seriously jeopardise their own election prospects. Secondly, it has always to be remembered that when appointing a Commission of Inquiry, governments always very carefully and methodically select a membership which they judge will deliver the main conclusions they want. Both Vickers himself, a former head of OFT, and all his 4 commissioners are Establishment insiders who could be relied on to reach ‘sound’ conclusions. Even so, this is the feeblest, wettest, most anodyne report that we could have imagined. It will achieve almost nothing except the immediate £1bn rise in the stock market value of the 3 main banks at issue.

The commission had two objectives. The specific one was to deal with the competition question after the Lloyds takeover of HBOS was allowed to override normal competition rules. They deal with this by proposing Lloyds sell off ‘substantially’ more branches (than the EU Commission has already required them to), but they don’t specify how many. Did we really need all the paraphernalia and cost of a year-long commission to reach such a blatantly obvious conclusion?

Then there’s the much more important issue at the heart of their inquiry. How can it be ensured that a taxpayer bailout is never required again? For this, perhaps the most crucial matter for determining the financial and economic future for the next 10-20 years, their response is piffling, even contemptible. They propose that the investment and retail operations of banks should be separated into different divisions, as though ‘Chinese walls’ between them would keep them apart. The naivety of this suggestion is breathtaking. But even the commission itself recognises the inefficacy of their proposal when they acknowledge “regulatory arbitrage possibilities at the boundary” – a typically opaque Whitehall circumlocution admitting that finance administrators and lawyers make their living by getting round inconvenient rules.

So where does this leave the banks and the wider community? The banks have not been forced to split off investment banking into an entirely different self-standing organisation, even though Vince Cable promised to do this when in opposition. In fact the US did so in 1933 in the aftermath of the 1929 collapse, and it succeeded in preventing another major banking crash till it was repealed in 1996, which then lad directly to the 2008 crash. The UK banks have not maintained lending to businesses and homeowners, even though this was a condition of the bailout. And when the government issued £200bn extra funding via quantitative easing to get the economy going again, the banks pocketed the vast majority of it to shore up their own balance sheets.

When the next banking crash comes, which it certainly will within a decade or two and a much nastier one next time round, the Vickers whitewash will be seen as one of the most shameful episodes in a long saga of capitulation to the banks.

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