'Changing banking for Good'

The high level recommendations are:

·      Bankers to go to jail for “reckless misconduct”

·      Senior banker responsibilities must be more clearly defined to ensure individual accountability

·      Competition and Markets Authority asked to look at competition in retail banking

·      Abolition of UKFI and study on RBS and Good Bank – Bad Bank options

·      Banks to publish gender position of trading operations

·      Senior bankers bonuses deferred for up to 10 years

The public are angry with bankers and will cheer the idea of putting them in the stocks and being criminally liable for their actions. There has been much disquiet at the lack of prosecutions of very senior figures arising out of the problems generated by the banking crisis.

Another competition review will address the perceived anti-competition image of the big 5 and is clearly designed to promote more competition and switching.

UKFI has been an ineffective buffer between politics and RBS, but will probably be retained, as it suits the Treasury to at least have the perception of an arms-length relationship. Few believe it is, especially after the removal of Stephen Hester who most commentators would agree did a decent job in difficult circumstances.

Gender balance in trading seems to be aimed at changing the laddish culture on many trading floors.

Bonus deferral appears to reinforce a direction of travel already underway.

Will it work, will it get adopted?

It will be some time before we know, as even absorbing the full 571 pages is a challenge itself.

The measures as proposed are likely to ensure bankers go through an extraordinary vetting process, are supervised closely and tightly by regulators, are managed prescriptively in terms of the business model they pursue, and have a short choke chain applied to their pay.

My overriding impression from reading the summary is of a series of measures designed to get bankers to take less risk and to be rewarded for being ‘safe’, for their boards to keep a tight rein on them, for regulators to feel their collar often, and for their remuneration to be kept under strong lock and key. This is fine, you will get more utility banking, boring, safe, less profitable, less tax take and fewer jobs, but less likelihood of problems at least in the retail ‘ring fenced’ sector.

This seems at odds with the report by Sir John Vickers and the Independent Commission on Banking which separates our banks between safe retail ( customer deposit holders) and Investment (Casino) ensuring that too big to fail is dealt with once and for all, and the taxpayer will not need to step in.

Given the latter, why the former? If the risk to the taxpayer is removed why would we want to choke back bank performance in terms of risk-taking, financial performance and profitability? It means less contribution to the Exchequer, fewer jobs and lower export earnings.

In the round, whilst the measures proposed will make British banking safe and boring, they will also make London a less attractive international banking centre.

Having previously dealt with too big to fail, this does seem like a double deadlock approach.