This is perhaps the most momentous day for British financial services since the de-regulation of "big bang" in the late 1980s.
The Vickers Report has delivered what we expected and a lot more. A high ring-fence is the outcome and a very high cost of capital - even higher than Switzerland's own ambitious plans for its banking sector.
The ICB seems to have rejected the view that these prescriptions for the reform of UK banking will damage the British sector - and claim that a long implementation period to 2019 will do the trick. Essentially Vickers is aligning the proposals with the current implementation timescale for the Basel III reforms. So the Chancellor, who has already indicated his broad support for these measures, will be able to claim British banking will be given enough time to get ready for these changes.
The Treasury was super quick to issue a reaction even before Sir John has given his mid-morning press conference. A Treasury spokesman confidently declared: "The Chancellor considers it to be an impressive report and an important step towards a new banking system that supports lending to businesses and families, supports the economy and jobs, but doesn't cost the taxpayer billions of pounds when it goes wrong."
Well that's alright then.
After days of headlines which have focused on the relationship between Vince Cable, who wants to go faster on reform, and George Osborne, who is in favour of the 2019 long implementation period, Government spin doctors will be pleased that, for today at least, the Coalition presents a united front.
But as the Treasury considers a comprehensive response - due before the end of 2011 and timed to coincide with the report of the Draft Financial Services Bill Committee in Parliament in December - watch out for Coalition tensions to re-emerge. No.10 let it be known a week ago that the Prime Minister has concerns over the scale of these proposals. Over the summer one Tory MP told me: "No10 is really concerned that the ICB creates headlines which point to more job losses in the banking sector and then in the wider economy."
Let's see.
In the end Vickers and his fellow Commissioners have taken the view that UK banking is too big for its own boots and too big for the UK economy. The Commission's view is therefore that the social cost would be very much lower than the private cost. With private costs said to be between £4-7bn, a range of £1bn-£3bn would seem reasonable for social costs given the proportion of private costs that results from removal of government guarantee and tax effects.
It seems the question of 'social utility' of the financial sector posed by FSA chairman Lord Turner over two years ago has been the ICB's guiding principle.
Finally, I'm in New York today where the US banking headlines are dominated by JP Morgan CEO Jamie Dimon's call for the US to consider withdrawing from the Basel III process - a move which would throw all these reforms up in the air.
Is Vickers the final chapter on banking reform? Can the UK go it alone? I just don't think so.
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Angela Knight: Vickers Report: The UK's Banks are Committed to Meeting its Challenges
Phil McCabe: Bank Closures: Branch Sharing Could Provide a Solution
During my time as a financial adviser l have visited a number of bank managers with a number of clients to obtain funding for their business. These men were in the main honest and gave my clients a good straightforward appraisal of their business plan.These bankers or bank managers were replaced by young go ahead whiz kids with their eye on the future and better more efficient practices covering up their real reason to sell insurance and investment products to customers as part and parcel of taking out loans and opening accounts.
These whiz kids have become the investment bankers of today and globalization has spear headed their rise to power and given them control over not just their own destiny but other peoples lives, savings and future. The collapse should have seen the end of these practices by cutting off their serpents heads but this was not to happen instead we just allowed it evermore lea-way to sink its fangs into our world and eventually someone says " We have To Do Something About This Before It Is Too Late " is it not already too late unless we can root out the greed within our world starting with the people that are the controllers of our banks and rid ourselves of their venom.
What to do about it? Well, I think the Vickers report ideas will go a long way. The serious professional bankers will (one hopes) gravitate towards the domestic-retail banking sector and the ‘Flash-Harries” will be welcome to the wholesale-commercial sector. The domestic side would be ‘ring fenced’ and protected, and the Flash-Harry side will be regarded as too expensive to save.
For the above to work, each sector should have separate ownerships; i.e. each would be a separate and independent company with different shareholdings. I would hate to think of pension funds being shareholders in banks which are left to run riot in the hands of the Flash Harries.
Regards, Derek Lantin
Ian Anderson asks “Can the UK go it alone on banking reform?” Probably. Should we? Probably not.
We live in an international environment where huge transactions are completed in seconds; we are probably entitled to hope that leading banks (at least throughout Europe) are co-ordinated and working to broadly the same rules and regulations.
As Ian Anderson correctly points out, the Vickers report has concluded that UK banking is too big for its own boots and must be restricted. I would go further and say that the UK banking system should be protected from its own greed and short term avarice.
We will be moving to a system where domestic retail banking will be “ring fenced” and carefully regulated. With luck, those retail operations will be operated wisely and in accordance with strict guidelines.
But what of the wholesale-international operations, - the so-called casino-banking sector?
The message of the Vickers report is clear; - the wholesale operations will no longer be regarded as “too big to fail” but as “too big to save”. Here lurk manifold dangers as we now know from experience that our bankers are irresponsible, greedy and foolhardy (at best). I sincerely hope that UK pension funds will be prevented from investing in this sector.
Sincerely, Derek Lantin. http://dereklantin.booksabuzz.com
In the U.S. they will be splitting coconuts with a rock for a living, within a number of years. It will take a revolution there, with public financing of elections and a constitutional amendment for new political parties, to have a chance of any meaningful change.
In the meantime Europe should continue ahead without using the U.S. as a reference. In the 1940s, 50s and 60s the U.S. was a beacon for the rest of the world. Now however it is the source of the bad habits and vices that are ruining the world - and the worst of these is unregulated financial speculation in search of a quick buck.
The GOP has too solid a lock on the Congress to pass any meaningful reform - and the American banking and financial institutions have a lock on the GOP and much of the Democratic party as well.
As an American, I heartily implore the UK and our European partners to bring all smart forms of pressure on the American government to "get with the program" and implement real banking reform.
Trust me, the UK should adopt real bank reforms regardless of what anyone else does - but doing it alone leaves the people of the UK vulnerable and disadvantaged in so many ways.
As with the US, some reform is better than none at all.
Adopting the reforms called for in the report, ALONE, will leave the people of the UK vulnerable and disadvantaged...
But failing to adopt the reforms at all will lead to disaster. To something much worse.