Uncertainty over Cable’s reaction a cloud on Osborne’s horizon
Cable…inconsolable
Vickers….incomprehensible
Brown….incorrigible
Labour lays a trap for the Coalition
In an obvious attempt to damn George Osborne with faint regulation, Gordon Brown told an American audience last night GMT that he had faced “relentless pressure from the banks to regulate less and less”, that this had been “a big mistake”, and he now fears “we are on a race to the bottom again to see who can regulate least”. It’s hard to disagree with anything there.
The timing was designed to give support to his fellow-socialist Vince Cable. Following frantic efforts last night at both the Treasury and the Business Ministry to hide Vince somewhere secure for a few days, the Vickers Report on the future of UK banking was published this morning. The Slog understands that Business Minister Vince Cable’s reaction to the report is less than complimentary. Chancellor George Osborne, on the other hand, is keen to give the Vickers conclusions his full support.
A person relatively close to the situation yesterday afternoon told The Slog:
“This is George’s fault. He trailed this report with all kinds of hints about how people shouldn’t underestimate the toughness of it. In fact, it’s pretty lame. When the bankers read it, one suspects their general reaction will be one of relief”.
Having glanced through the key points this morning, I would say that source was right on the money.
Yesterday morning the Sunday Telegraph speculated about the threat of a senior split in the Coalition over the contents of the Vickers Report. The article as a whole had the Barclay Brothers’ agenda throughout (‘Coalition about to break up in three minutes’) but for once it seems that – at least as far as the Cable/Osborne rift goes – minds are not meeting on the issue.
The deal-breaker between the two men appears straightforward enough. Cable wants the big banks broken up into entirely separate smaller parts that cannot dominate either markets or politics via their financial clout. Osborne is happy to go with what most expect Vickers to recommend: a ‘distinct subsidiaries’ solution whereby the overall corporate entity is retained, but contagion from investment risk to retail operations in rendered impossible.
I must confess to being confused about this latter route: if contagion is impossible between two entities, how can they be owned by the same bunch of casino spivs management? I am left wondering whether we might be using the BSkyB/Newscorp fantasy formula again here.
The FT confirms my fears this morning by asserting that the Report asks the banks to ‘ring-fence their retail operations in the UK to ensure that critical operations – such as customer deposits, small business lending and payment systems – can keep running in the event that the banking system fails….’
I know of no practical way of doing that. If an investment bank in Japan loses $300 trillion in an afternoon, that is going to affect a Lloyds retail bank in Newmarket: in a globalised money-markets world, it cannot do otherwise. If a recession hits China and they shove up interest rates by 5% in five months, Lloyds in Newmarket will alter its behaviour – unless it gets ALL its deposits from the public. And with low interest rates and a public that’s skint, that simply isn’t possible.
Going further, the report strongly recommends that banks will be able to move capital freely around the business as a whole rather than independently capitalising their retail and investment banking divisions – a looser approach to so-called subsidiarisation – the creation of separate subsidiaries for retail and investment banking – than many of the big universal banks had initially feared. And much weaker than those of us outside the asylum had hoped for.
Things become yet more disturbing when one notes that the Report moves its tier capital ratio recommendation up from 7%…..to 10%. Frankly, that’s like spitting at a Tsunami. Even the Barclays cowpoke Bob Diamond has a target of 11.5%. Lehmans went under with 13.2%. Something over 18% is what we need – possibly even more.
All in all, I suppose one can say that the Vickers Report has all the hallmarks of an official denial. Major banking shares rose on the news and God was smiling in his Heaven.
My own as usual eccentric view is that the Cameroons have fallen into another of the Left’s elephant traps on this one. The timing of Brown’s remarks cannot be coincidental. It is quite possible that his pupil Ed Balls agreed the timing with him. And this frees the Labour Party – after Balls’ similar mea culpa last month – to say ‘we’ve owned up – but you’re getting it even more wrong than we did’. When Crash 2 arrives, the Opposition will be in poll position.
We should all be very afraid.
The Slog 