Osborne shows his true colours: in the pocket of the banks

Osborne’s sacking of Martin Wheatley, head of the Financial Conduct Authority (FCA) says it all. His sin was that he was too tough on the banks. The banks are the most powerful section of the Establishment which runs Britain, and Osborne is one of their chattels who does their bidding when half of the Tories’ annual income comes from the UK finance sector, so Wheatley had to go. This is a political ousting of the worst kind. Wheatley was a tough regulator which was needed, and is still needed, when almost every week new scandals are unearthed in the finance sector, when the banks cost the UK £70bn in bailouts and a doubling of the national debt to £1.4 trillions, and when new areas of systemic financial risk including the revival of derivatives that caused the crash in the first place and the growth of the shadow banking sector threaten another financial armageddon.

Wheatley’s dismissal is a clear sign that the bankers’ muscle can decide who their regulator should be. It’s like a burglar saying he didn’t like the judge allotted to him and wanted a different one – and getting away with it. Some leading bankers regarded him, we are told, as ‘remote and unhelpful’ (i.e. he refused to attend their luxury lunches to have his ear bent) and complained to Osborne about his ‘consumer-champion agenda’ (oh dear, fancy a regulator siding with the bankers’ victims!).

The truth is, Whaeatley did a good job in extracting record fines from the UK banking industry, though on nowhere near the scale of those imposed in the US, but he was not nearly tough enough. Yes, he led the global response on how to regulate Libor and the forex markets, cracked down on retail banking products like PPI, took on payday lenders, and adopted a host of new powers. But the record fines he doled out hurt the shareholders, not the perpetrators of the financial crimes committed – the top executives – and his inability to send the worst offenders to prison (was this prohibited by Osborne’s Treasury?) meant he couldn’t tackle the financial contagion at its root.

Now Osborne has in effect announced that banker-bashing is to cease and that banks were not the problem, but part of the solution. Such wishful thinking is beyond satire. The banks continue to be by far the most dangerous element in the State most likely to cause the next cataclysm as they demand business as usual and a return to the ‘light regulation’ which nearly torpedoed the global economy just 7 years ago. If this does occur, the sacrifice of Wheatley to appease the banks will leave Osborne entirely exposed without any political cover to protect his flank.