Coalition prepares for bank bust-up

disenfranchised

old twinkletoes knows he's onto a winner with this one. the banks are already braced for it, realising the game is now up.
righteousness will positively flood from libdims.
i've a large supply of eno at the ready.....

Brownloather

Amazing. People with no knowledge of banking or business like Vince Cable get to lead public debate on a critical issue. No doubt some compromise will be reached and sold as a panacea for regulating and saving the banks from themselves. Meanwhile the simple truth that no regulatory formula, however politically attractive, can work in the absence of management of an institution by a prudent, properly qualified and accountable executive team can safely be ignored.

Lonsesome Dave

How do they win the argument? Are you really serious? They are the Prime Minister and the Chancellor; consider the argument as won! Both Clegg and Cable will be finished, as sitting MPs, as a result of this coalition and their arguments and posturing are simply silly.

It's high time the "Yellow ba****ds" were sobered up or better still completely ignored! It was 9% these two managed wasn't it?

Rhoda Klapp

You are saying that the difference between do it now and take a little time is the basis of a split? Obviously it takes time to implement. Obviously it does not need to be kicked forward again. So a compromise is to limit the time allowed. Thanks very much, I am available for all kinds of economic and political consultation at almost-affordable rates.

Andy H

If the Government are representatives of the people, and there is a real desire for the separation of Retail and Investment banking, then why should they argue against it?

If the Vickers report recommends this as well, then that removes any remaining reasons to stop this happening, and it should be implemented as soon as possible.

Why should the banks need a long time to introduce these rules?

Is is not obvious that until the banking sector is regulated such that their business model is congruent with the needs of society then we will for ever be privatising profits and nationalising losses.

If the remit of Retail banking was that they made profits by investing in people and business (as opposed to being used to bankroll the investment arm gambling) then we may encourage growth in the economy, not bubbles.

There were very good reasons why the Glass Stegal Act was implemented, and globalisation has not changed this reason - no matter how much the lobbyists try to tell you otherwise.

If the bankers made profit when society does then that would be a great benefit to us all.....

Faceless Bureaucrat

Ah! - just what the Banks need as they struggle to restructure themselves...

Publius

"The result will be, as one senior Lib Dem source tells this morning’s FT, ‘a big fight’."

More likely a big staged bogus "fight" in time for the LibDem conference.

More dishonest manipulation from the honest party.

Trapped

And yet it still falls a long way short of what is really required which is the reintroduction of proper capitalism. The only way to achieve that would be to outright seperate the investment arms from retail banks so if the investment arms make a bad bet (looking more and more likely with their exposure to ever growing piles of toxic debt), they can be -allowed- to fail. Simply ring fencing won't cut it I fear.

Capitalism means you stand and fall by your own decisions, so far we've not seen the banks fall on their own stupidity because people are afraid all that imaginary money will go up in smoke. So what if it does? It'll give the world a chance to renationalise financial services and put an end to the corrupted temple once and for all.

Purpleline

It is time to create a problem for the LibDems and jettison them going for a November election.

Osborne should buy time by instigating the break-up of RBS into its constituent parts. The sale of Nat West back into private hands would see much needed funds flow into the Treasury and prepare to send the message to Scotland that it has lost its bank.

I believe Nat West value is £22-27b.

REPay

The repeal of Glass-Stegal was a HUGE mistake as it gave investment bankers big balance sheets to play with. However, we need to take into account the impact on London...like it or not our bloated state sector needs the revenue!

perdix

What does "the public" know about banking except a wish for punishment?

Nick

Are you deliberately trying to foment a bust up where none exists.

The Vickers Commission wants banks broken up, the Lib Dems want a bank break up and so do the Tories.

So it is really just a matter of timing that is being debated. Hardly a matter for a serious rift.

2trueblue

Cable, is he the weakest link? What great experience has this man actually got? He knows nothing about banking, but then who amongst our MPs has? The CBI are against it and I would put my money on them any day.

In2minds

So the coalition will indulge itself with a ‘a big fight’. Unless banking reform includes a better, not just safer, regime for customers it's all been a waste of time. Savers get little return but bankers get a bonus. So when the fight comes can I join in?

MajorFrustration

At least if both sides of a bank are ring fenced then the retail side will have the deposits (in spades) to finance SMBs and personal cuatomers - it will have to otherwise it will not make any money.
However there should be some safeguard that investments in its investment bank arm or other investment banks is never more in total than say 5% of its CR and such an investment is covered by what amounts to a CDS

TomTom

Banks should be offered free access to Pension Funds, Current Accounts, Treasury Balances and Life Insurance Policies of any and all citizens to keep their business model afloat.

They should be able to forcibly remortgage and real estate in the United Kingdom to provide collateral for trading activities, and the Citizen should provide unlimited liability on his personal assets for Bank liabilities.

The only way Britain can succeed in the modern world is for the entire population to become serfs for the Banking System rather as the Israelites did for the Pharoahs

Jupiter

The government should pass a law making it illegal to bail out the banks. That would prevent a banking crisis from ever happening again.

Baron

We didn’t get into the shite because of the investment arms of the big banks, we got into it because of utter failure of the three-pronged watch over the banking sector, the imbecility of politicians summed up best by the ‘no boom, no bust’ pap, the breaking of basic rules on lending like the 125% self-certified mortgages.

What the unwashed don’t get is the separation of the two divisions of banking will not make banking safe any more than their being combined, however, it will lower the availability of credit, hike its cost.

The best solution would be to tell the banks to arrange their affairs any way they like, but if they run into difficulties there will be no taxpayer money to bail them out.

Trust Baron on this, he knows, he’s looked it up.

TomTom

"What the unwashed don’t get is the separation of the two divisions of banking will not make banking safe any more than their being combined, however, it will lower the availability of credit, hike its cost."

Well until 1986 they were SEPARATE and we did not have banks becoming insolvent. Until Big Bang in London Glass-Steagall kept the US economy stable but LOndon forced the repeal of Glass-Steagall and hey presto Goldman did it all over again as in 1928.......

Richard

1986? Hmmm. Who was in power then?

Yet the recession and debt are all Labour's fault, apparently; nothing to do with Thatcherite policies at all.

Nick

@ Richard.

If you blame the current financial crisis on Thatcher's policies back in 1986, do you also praise her policies for doubling GDP and household incomes since 1986 ?

Andrew SW18

I struggle to recall the activities of Northern Rock's Investment Bank, or those of Bradford & Bingo's.

I do, however, recall the vast sums that N Rock's charitable arm hosed into Labour's front organisation, the IPPR. Odd, that.

Baron

The rot set in, when near the end of the last century the US Government had organised a rescue of the LTCM outfit, the hedge fund that played the convergence game, lost, (massive leverage, the portfolio size over $100bn, equity below a billion, if Baron remembers), this sent a message to the banking outfits everywhere: ‘the bigger, the safer’ no Government will allow you to fold up, it’ll rescue you.

That’s the biggest mistake those in charge have made, are still making. Capitalism has a number of ground rules that cannot be interfered with at any cost, one of such rules is that no operating entity should be guaranteed to stay afloat, not to go bust, whatever the price of the failure, in the long run, it’s cheaper to take it on the chin rather than to face truly catastrophic ruin later.

What will bury us, and bury us for certain is not the coupling of investment banking with retail, it’s the implicit underwriting of the banks’ operations by the taxpayer, the lunacy of it on par only with the imbecility of guaranteeing bank depositors the £80,000 or whatever. Not only does the guarantee distort massively the flow of capital, it also essentially bars any new entry into banking, if anything, it’s the small pool of banks that’s the key problem in the financial sector, the main reason for the bankers pay and stuff. Madness.

Nigel Molestrangler

@Richard

Are you saying that the financial crisis was a result of Labour following Thatcherite policies between 1997 and 2008 ?

john sunmer

yeah, just what the banks needed. Alas, at least they still have the money to pay themselves an obscene amount of money. First things first.

Richard

Nick,

You make a fair rejoinder. Assuming that you're right on these two points, I think it would indeed be fair to accept them - if you'll be similarly fair in attributing our present woes partly to Thatcherite policies that New Labour did nothing to change. I'm no expert, but I think Thatcherism did bring short term prosperity of the kind you mention, though I would hasten to add that it was unstable and very unfairly distributed.

I made my point about 1986 because we hear so often on these pages that the fault is all Labour's. That isn't fair. Both of our main political traditions are deeply implicated in this rercession and debt crisis. Both have failed to find long-term, reliable and just solutions to the problem of how to maintain our standards of living in a globalised economy. This goes back to the labour disputes and industrial failures of the 60s and 70s, and to the deregulation and financialisation of the 80s.

Richard

Molestrangler,

Does that seem a surprising analysis to you?

I'm partly suggesting that; partly saying that we should be willing to look for the long roots of this crisis. TomTom has advised us that one of the causes was a Thatcherite policy followed by Thatcher in 1986. Union resistance to modernisation in the 60s and 70s is also implicated; it made Thatcher possible.

Baron argues for a purer capitalism in which there would be no bail-outs. Banks that made mistakes would be permitted to fail, presumably ruining all their small, innocent customers in the process, and perhaps precipitating a catastrophic loss of confidence in the whole banking system, and a run bringing them all down. Or perhaps not. It would be an interesting experiment, viewed from the safety of another planet. The Conservatives weren't
advocating this in 2007-8, I don't think. Politically, it wouldn't be possible, would it? Protecting ordinary small customers from having their lives wrecked by the invulnerable super-rich is one of things people still expect from their goivernments, strangely.

steveal

Excuse my ignorance. Can't they decide what they think is right, and DO IT?

Trapped

@ Baron

"We didn’t get into the shite because of the investment arms of the big banks, we got into it because of utter failure of the three-pronged watch over the banking sector, the imbecility of politicians summed up best by the ‘no boom, no bust’ pap, the breaking of basic rules on lending like the 125% self-certified mortgages."

*sigh*

No, no, no and no. The problem was that sub-prime lending was driven by the investment arms who wanted ever more complex financial instruments to trade for ever sillier sums of digital money, the investment side and it's desire for subsidy whilst it takes big gambles on the stock market (and thus creating huge bonus pools for the select few) is why eventually this all came to pass. Enough bets proved "bad" that the banks stopped trusting each other.

Look up CDO packages, then you'll quickly figure out retail ended up as the little poodle to what investment was up to. If retail hadn't had the investment side going "Take the gamble!" it wouldn't have done, nor would it have pretended to have had the resources to have done so. The casino put us in this mess, the government then socialised the bad bets whilst privatising the profits, and now the governments are being told to honour their debts by the very same banks who skipped out on theirs. Hilarious.

alan campbell

Trust the Tories to defend "casino bankers".

Adam Smith

@Trapped,

You’re quite right; it’s entirely down to “investment arms”. Which clearly explains the implosion of Northern Rock and Bradford & Bingley, not to mention various smaller banks and credit unions that went belly up in America (and elsewhere around the globe).

Your overly confident spiel is lacking in both facts and a basic understanding of finance - - you should get a job in government!!!

TomTom

"the imbecility of guaranteeing bank depositors the £80,000 or whatever."

At the time of Northern Rock British Depositors enjoyed £2000 of insurance not $100,000 as in the USA.

Investment Bankers stuffed Retail Investors with junk. Goldman did it to Mutual Funds it controlled in 1928 which is why Glass-Steagall separated them....and B&B ran a Master Partnership called Aire Valley Master Partnership and Northern Rock had Granite in the Channel Islands to package loans and Securitise and Pass-Thru. Hardly retail activities.

Depositors Cash should be secured on the personal family assets of Bank Directors with the threat of 30 years behind bars for any transgressions.

It is time limited liability was removed by the High Court in cases of outright fraud and Bankers were jailed for life.

Trapped

"You’re quite right; it’s entirely down to “investment arms”. Which clearly explains the implosion of Northern Rock and Bradford & Bingley, not to mention various smaller banks and credit unions that went belly up in America (and elsewhere around the globe)."

Yes, I wonder why. You've obviously never heard of causality. Let me paint a quick example. Big casino investment arms make bad bets, the bad bets become known in more than just the inner circle of that particular investment arm, others start getting edgy and lending between banks becomes restrained, the moment the bigger financiers stop trusting each other, the flow of credit dries up in -every- direction imaginable. Smaller creditors are often highly dependent on interbank credit lines to keep them afloat (god bless fractional reserve banking), so when the initial crunch happened and all the lines dried up, the choice was either to let the entire system collapse, or to prop up those seen as "to big to fail" and let the little guys hit the wall. The latter of course is what caused the debts involved to be socialised to the taxpayer, and the large banks who dealt in these insane financial instruments walk away smelling of roses. No surprises, the subprime lending surge is already starting to re-appear, and the inevitable return of the "crunch" is a lot closer than people believe. Another set of bad rumours and we'll be back to either bailing out the banks and propping them up with cheap BoE loans, or someone will say "screw them" and our entire financial system grinds to a halt briefly.

Baron

Trapped, my blogging friend, sorry, you wrong, the sub-prime lending came about because of the pressure from politicians, the likes of the Barney Franks on mortgage lenders to advance monies to those the banks wouldn’t have touched before with a barge pole, noble as it was it seeded the eventual outcome, the sub-prime was attractive primarily because the banks charged such clients more than the credit worthy ones, in times of the low cost of money these sub-primes were attractive, got bunched up, sold on to institutions that needed the yield, the weakest link nobody seems to have spotted was the base, the ability of the ‘deserving poor’ to keep up with re-payments.

How come then not one of the agencies watching over the securitisation of the sub-prime contracts said nothing? Why didn’t they put a stop to it, ha?

the CDOs wouldn’t have ended as they did, became ‘toxic’ if the underpinning debt holders didn’t default en messe, the synthetic instruments were never a problem, they were never ‘naked’, it was only when the sub-primers fugged up, liquidity dried up, the investment side suffered.

Adam Smith has it spot on.

Baron

TomTom, calm down, the bankers didn’t do anything illegal, if they did they would be doing time by now, you cannot send people down for misjudgement however injurious, it ain’t done, there wouldn’t be enough places in our jails even if we were to convert most of the housing stock into prisons if we were to do it, think not of the bankers only but the politicians, the lawyers, the doctors….

and as for your idea to secure depositors cash were on family assets of banks’ directors, may Baron suggest you brush up on the basics of banking, then come back, we talk?

Trapped

@ Baron

There's plenty of speculation the bankers (particularly goldman sachs) may have been involved in less than legal activities. Simply because they're not behind bars does not mean they're squeaky clean.

As for the securitisation of contracts, many economists -did- speak out about it, even trading insiders have openly said that CDO's and in particular CDO squared became so inscrutable that basically there was no reliable way of assessing the risk inherent in the trades, it was pure number pushing at the end. Lending to the sub-primes was the problem, securitising them was how the financial industry kicked the can down the street.

You can't put a stop to something when you're not in the position to do so. Even the SEC has admitted to torching many many investigative files concerning such matters that may have led to criminal proceedings against the very people you're defending.

You need to look at the bigger picture I fear.

TomTom

"and as for your idea to secure depositors cash were on family assets of banks’ directors, may Baron suggest you brush up on the basics of banking, then come back, we talk?"

Oh Baron, when you know as much as I do about Banking you can be half so smug. I know the people who run this system both sides of The Atlantic and I know just how funny they think people like you really are. the penalty for fraud should be Death. The disaster the financial system has wrought deserves Death. Millions of lives disrupted while the criminals get bonuses and not one single Bank Director ruined. Eric Daniels still gets £100,000.month paid by George Osborne having increased shares in issue by 11000% to buy a dead dog.

Pension funds stuffed to the gills with Gilts to fund Banks so they can gorge on bonuses. Oh Baron, what puny knowledge you have of banks and yet so smug

Baron

TomTom, my blogging friend, knowledge is one thing, intelligence another, Baron bows to your superior knowledge, it’s the suggestion of yours that assets of but a few individuals could secure shareholders equity he finds silly.

and another thing:

you’ve signed Guido’s e-petition on capital punishment, haven’t you?

Baron

Trapped, listen up, my blogging friend, you can securitize everything for inst. your life income, flog the paper, get the cash, pay the (currently) paltry yield, invest the bulk of the monies in a brilliant idea (if you have one), succeed, rake in millions, buy the paper back, what’s wrong with that.

we all have views on this and the other, well, on everything, Baron reckons what has made us since the war the most successful, pampered, need free society that has ever inhabited this little earthly abode were two things: cheap energy and credit creation, Baron agrees the latter got overdone, we went overboard, but to kill off the one ingredient that has contributed to that success because few rotten apples have fugged up, hmmm.