The banking sector remains in a mess. Would anyone dispute it? Perhaps not, but there any consensus would probably end. Certainly it seems there is no agreement on the way ahead to restore the financial sectors – and by implication the rest of the economy – back to something like good health. Nor is it clear how to prevent the sector from again flinging itself off a cliff and dragging the rest of UK plc down with it.
The coalition government set up the Independent Commission on Banking (ICB) to establish a blueprint for the future of banking. Sir John Vickers and his team set about their task with thoroughness and with the idea of signalling the ICB’s intention as clearly as possible in a bid not to spook markets or to upset politicians.
But despite the support given by the government to the Vickers recommendations it seems that this is not the end of the matter. The Treasury Select Committee announced it wanted to pick over the proposals. The committee chairman Andrew Tyrie says the Vickers recommendations, if implemented, could have profound consequences for bank lending, economic growth and the competitiveness of the UK financial services sector. So the committee wants to orchestrate a vigorous debate to ensure that Vickers is the right way forward. As we went to press, the Vickers team appeared en masse in front of the parliamentary committee and was due to be followed by key witnesses, including the ACT.
More on the committee proceedings in the December/January issue of The Treasurer. If the recent ACT breakfast meeting on the Vickers Report is to be relied on, the politicians can expect to hear much criticism of the proposals on ring-fencing, international competitiveness, funding for small and medium-sized enterprises, loss absorption and risk-taking – in other words, the core of the Vickers proposals. The concerns raised are
genuine and maybe better solutions could be found than the raft of proposals the report has laid out on the table. But they would have to go a long way to be better thought through and balanced.
As it undertakes its deliberations, the select committee will bear firmly in mind the UK’s need for a financial system that over the long term adds to, rather than detracts from, the common good. As Vickers notes, beyond the short-term desire to patch up the banks’ balance sheet and to keep credit flowing, the long-term aim is a banking system that is more stable – giving fewer and smaller shocks – and more competitive. It is an objective that must be neither lost nor hijacked.
PETER WILLIAMS
EDITOR
