The much heralded report on banking regulation from Sir John Vickers has finally been delivered. It signals the biggest shake up of the City of London since the 1980s – but not just yet. Vickers recommends that banks should separate their retail and investment operations and have sufficient capital to be able to fund their frequent trips to the casino. Vickers acknowledges that the proposals are complex and far reaching so has come to the rescue of the Chancellor by giving him seven years to implement them. Everyone is apparently on board – the banks have barely murmured. Job done? Not quite.
The politics of this – past and present – are fascinating. In 2008 as the banks haemorrhaged, the British taxpayer was forced to ride to their rescue. On one particular day the public went about their business blissfully unaware that their local hole in the wall was just 24 hours away from running out of cash. Not unusual? Well in this case it was as the banks literally had no banknotes left to fill them up with. Billions were pumped in to keep the banks afloat on the basis that it would be unthinkable for one of them to go under. By 2010 the Treasury was empty and as it happened under Labour’s watch they paid the price at the election.
Some might argue that the most incredible outcome of all of this was Ed Balls issuing a mea culpa for his involvement in a government that presided over such a light touch regulatory regime. It does remind us however, that virtually all politicians (with the honourable exception of the recently beatified St Vincent of Twickenham) were trying to outdo each other in arguing for less regulation not more, something that has conveniently been banished from the memory of the Chancellor.
All of this has demonstrated in graphic detail just how few friends the banks have. One wonders what they and their associations have been doing for the last few years if they cannot get even the right wing of the Tory party to defend them. Even the usual anti-regulation rhetoric has been shoved to one side by a government keen to begin a process that will end with massive regulatory intervention on the banks.
There is a lot of water to flow under the bridge before 2019. Ed Miliband is talking about Vickers being the “first stage of reform” not the end. No doubt his advisors will be working on a number of cruel and unusual punishments to inflict on bankers in the hope that Labour can draw favour from the public.
The Chancellor has said that the proposals will require primary legislation. He will want this to be a post 2015 election legislative battle which gives all parties concerned plenty of time to sharpen their knives. The banks themselves now have adequate time to get into the meat of this argument and achieve, in the circumstances, the best outcomes in what will be a complex and technical area of policy development. If they are wise they will approach this gargantuan project with a little more humility than they have in the past.