Your post makes lots of very good points but you need to make it clear that, even if they haven’t solved all the problems overnight, this ring-fencing is the single best thing the government can do to the banks on the behalf of the public.

I don’t think it’s constructive to expect policy to overturn over a decade of learnt behaviour in a single announcement. Now that ring-fencing has been decided on, you only need a couple of much smaller adjustments plus time to get to the point you’re arguing for in your post. It’s undoubtably true that these adjustments won’t come, however, contrary to your sentiments above, this ring-fencing is actually a much bigger step than I think you give it credit for.

“… this ring-fencing is actually a much bigger step than I think you give it credit for.”

The trouble is, in the failing plutonomies of Britain and the US we’re so far up the creek that we are going to need some huge paddles to help us back to survival, Chris.

So yes, we also need a Green Investment Bank, one that can raise funds.

We need to escape the megacorps that siphon everything away to faceless financial bureaucracies and get interested again in small businesses that do socially useful tasks and provide employment for people at fair wages. “I suggest we … provide a bank for small and medium-sized as well as large U.S. corporations” recognises PIMCO founder Bill Gross.

http://rortybomb.wordpress.com/2011/09/09/on-the-asymmetry-of-the-impotent-bond-vigilantes/

Even some of the super-rich are now crying out that plutocrats need to pay more tax! So what’s stopping us from collecting that money to put to sensible use?

We need a complete rethink of our economic structures. So yes, we have a long way to go and this is just a small start.

It can be confusing to talk about “banks” in a big lump – much of what The City does (stockbroking, corporate bonds, swaps, futures etc.) plays a large role in the productive economy and whilst it has its short-termist aspects, is often about the long-term – secondary stock markets, for example, are part of a long process that takes companies all the way from inception, venture capital, and flotation. Investors are more willing to enter when they know they can exit. The stock market puts great value on long-term profitability – Vodafone wouldn’t be worth nearly so much if everybody thought it was only going to make money for the next 2 years. The role the stock market plays in shaping resources allocation (people trying to create firms that will be highly valued by investors) is, I think, very poorly understood generally, especially on the left.

Then there is corporate lending. Contrary to what this speech excerpt suggests, banks are quite willing to fund long term projects. There are ample examples. Banks will lend when they think they will get a return, so they will fund projects with a good prospect of profitability. This is “useful” banking, and I think banks are doing their job in this regard (although as OP mentions, having to get back in shape after the crash means credit supply might be tight right now – the picture really isn’t clear there).

However, there is still a potential role for state investment banks – to fund projects which aren’t profitable in the commercial sense – perhaps because the returns are “social” and cannot easily be monetized and turned into loan repayments, externalities and all that jazz, or perhaps because there is a co-ordination problem that private actors cannot easily solve, but a large central entity can (potentially) corral everybody into action. I’m thinking of big ambitious infrastructure projects, that sort of thing.

Supporters of state investment banks and such like should also be aware of how they can go wrong – by which I mean waste tax revenues and lead to worsening economic performance, reductions in real wages etc. But that topic deserves a post on its own – one thing to think about, given the current political landscape in the UK, who do we think is going to end up running these banks?

Lord, make me chaste. But not just yet.

I assume 2019 is the long grass, by which time there will be another excuse to prevent anything actually being done. That’s assuming the banks haven’t collapsed again by that time and the world isn’t being ruled by giant mutant radioactive cockroaches

“Green Investment Bank”

Raising bills equally with every penny it provides, woo! (and in many cases, that’s a low estimate…) Well, that’s one way to cut energy consumption, make it too expensive for the poor!

There’s a world of difference between “national” and “green”.

Leon: if by Green they mean Green, I’d say you have a point. If by Green they mean ‘sustainable’, that’s rather different. Really anything we do should, where possible, be sustainable; i.e. something you can still do again tomorrow, next month, next century.

Any other philosophy is arguably short-termist.

And no, I don’t live that way yet. AFAIK the only way to do so in this culture is to become an energy- and food-self-sufficient recusant. That’s quite hard.

If they mean “sustainable”, then they need to say so (and that has it’s issues, too). I take “green” to mean “green” energy projects. And you want sustainability at the local level? Oh, whoops, your costs just went up by an order of magnitude…

I’d like to be sure that any policy intended to protect us does something about the “Too big to fail” problem for a start. Is there anything about it in the Vickers report? I haven’t heard of it, only the idea that greater capital reserves should offer more protection. Faced by a similar crisis to the sub-prime crash would the new requirements do more than give us a week or so more dithering time?

Similarly, how much less likely would the Vickers proposals make it for governments to have to bail out failing banks? That business of privatising profits and nationalising risks?