Government prepares to compromise over watered-down banking reforms


by Duncan Weldon    
3:17 pm - March 31st 2011

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Today’s FT reports that ‘Treasury officials’ are pushing for a three way deal between the government, the big banks and the independent Vickers Commission on Banking Reform – which is due to report on April 11th.

The move is aimed at forestalling a public confrontation between the banks and the commission, easing any possible tensions between the Conservatives and Liberal Democrats over banking reform, and smoothing the way for the reprivatisation of Lloyds and Royal Bank of Scotland.

This strikes me as big news.

The independent commission hasn’t even published its initial findings and already the Treasury is talking about a ‘compromise’.

This isn’t the first time the Treasury has interfered either, as the Evening Standard’s City Commentator Anthony Hilton wrote four weeks ago:

The Government offered to emasculate the Independent Commission on Banking as it tried to strike a deal on bank bonuses a few weeks ago. I am told it backed off only when Sir John Vickers, chairman of the inquiry, and his entire committee, Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf threatened to resign.

The row emerged in the last few days of frenzied negotiations around Project Merlin early in the New Year. A key objective of Merlin from the perspective of the banks taking part was to normalise relations between them and the Government. Thus the impression created by both sides was that the main area of discussion was bonuses and lending to small businesses.

It has now emerged, however, that the chief reason the banks took part was to lift the threat that Vickers’s commission would recommend a major restructuring of the banking industry which would have the potential fundamentally to alter how they do business and where they make their money.

It increasingly looks like the Vickers report will actually deal with some of the big issues around the banking sector. However last month I expressed some worries about how the government would react:

This is the same pattern we saw with Project Merlin, Osborne will do nothing to damage the resale value of the banks. Given a choice between a better functioning, safer system and a larger pre-election war-chest from the sales of RBS and Lloyds, he is taking the second option each and every time.

I’m rapidly losing faith that the UK will see any major banking reform after the Vickers Commission reports in September.

The news today makes me think I was right to lose faith.

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Reader comments


1. AnotherTom

The UK government’s regulatory charade is effectively a charade for the entertainment of the media and chattering classes. The bulk of the difficult stuff on new bank regulation stems from the US, Basel III and the knock-on effects of Solvency II. The degree to which stuff is going on in finance which the political media simply doesn’t have the ability to comprehend (hello Johann Hari) staggers me.

2. Luis Enrique

Hi Duncan,

did you read this by Richard Smith? It accuses Demos of being shills for the bankers, but it also had what I found interesting background on the battle between the Commission and the regulators (who are really quite radical) and the politicians and bankers.

I share your pessimism, the reformers are going to be defeated. Ah, Limited Purpose Banking, we can but dream.

3. Duncan Weldon

Thanks for the link Luis.

4. sally

Well with Ireland now saying they need another £24 billion for the banks, I’m sure Pip Squeak will step in and help right away. Bailing out his city mates with tax payers money is just fine for the corporate elite.

5. pagar

I’m rapidly losing faith that the UK will see any major banking reform after the Vickers Commission reports in September.

And I’m losing faith that people will ever notice that this Frankenstein-like creation of state corporatism has come to increasingly dominate every aspect of their lives. The monster knows it has a life of its own now and that we can’t kill it.

There will be no meaningful banking reform- the monolithic banks don’t want it and nor does the government. Why would they? (Cue Gordon Brown and Victor Blank sharing a cocktail).

Both sides make money from the unholy alliance, one in profits and the other in taxation, and we get screwed at both ends.

6. George W Potter

Good thing that lib dem conference passed a motion requiring their mps to back the committee’s proposals then.

7. sally

So what are you Lie Dems going to do when you lose the AV vote? Stick it out for another 4 more years of helping the rich or pull the plug on the whole lousy govt?

8. Bob B

With the proposed stifling of the UK’s “independent” Commission on Banking, the extra bailout of the banks in Ireland and the report yesterday on the serial failings of auditors, blaming all the “mess” of the financial crisis on Gordon Brown is looking increasingly unbelievable:

“House of Lords report attacks ‘complacency’ of Big Four auditors in financial crisis, urges competition investigation”
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8415860/House-of-Lords-report-attacks-complacency-of-Big-Four-auditors-in-financial-crisis-urges-competition-investigation.html

The coalition government is going to have to come up with a more credible “narrative” about the causes of the financial crisis – and soon. May be they will seek refuge in that tried and tested insight of Hitler: The great mass of the people is more likely to fall victim to a big lie than to a small one.

The position of Nick Clegg and Vince Cable is now looking increasingly dodgy with this from April last year before the election:

Nick Clegg and Vince Cable set out radical banking reforms:
http://www.libdems.org.uk/latest_news_detail.aspx?title=Nick_Clegg_and_Vince_Cable_set_out_radical_banking_reforms&pPK=5f5545e6-89d8-4f3b-a8f7-2e83638a0e68

And then this from last September:

Vince Cable attacks bankers as ‘spivs and gamblers’
Vince Cable has attacked the “spivs and gamblers” who he claimed are more of a danger to the economy than militant union leaders.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8018194/Vince-Cable-attacks-bankers-as-spivs-and-gamblers.html

Oh dear! We do live in interesting times.


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