And almost everyone's happy with it :mellow: :huh:
QuoteAcclaim for banking shake-up plan
There has been widespread support for a government-backed commission that has recommended UK banks ring-fence retail from investment banking.
The Independent Commission on Banking, led by Sir John Vickers, said it would "make it easier and less costly to resolve banks that get into trouble".
The ICB called for the changes to be implemented by the start of 2019.
Chancellor George Osborne said the report would mean UK banks could remain competitive.
"The government wants Britain and the City of London to be the pre-eminent global centre for banking and finance. We want universal banks headquartered here with all the advantages that brings," he told Parliament.
"The global investment banking operations of UK banks can continue to be as competitive as any in the world."
He also said that he planned to stick to the report's timetable.
There was some criticism from employers' group the CBI, which said some aspects of the report would damage the competitiveness of UK banks.
The head of the union umbrella body the TUC said that the report did not go far enough.
Brendan Barber said it was "merely tinkering around the edges of what is one of our absolutely central economic problems", which was how to make banks useful and "get responsible credit flowing again".
The shadow chancellor, Ed Balls, said he was "deeply sorry" for the part the last government played in the regulatory failures that led to the banking crisis.
He described the report as "important and authoritative", while the ring-fence proposal was "tough and radical". But he said it should be "the start, not the end point for reform".
"To help get the economy growing again, we urgently need to increase net lending to small businesses, which the government's deal with the banks has failed to do, and we need action on issues like pay and bonus transparency."
Sir John Vickers said the report was "fundamental and far-reaching".
Separate entities
The report recommends that ring-fenced banks should be the only operations granted permission by the UK regulator to provide "mandated services", which include taking deposits from and making loans to individuals and small businesses.
It says that the different arms of banks should be separate legal entities with independent boards.
ICB main recommendations
Ring fence retail from investment banking
Keep 17-20% of certain assets as "loss-absorbers"
Lloyds branch sale to be opportunity to bring in competitor
New system to help customers switch current account
Reforms to be implemented by 2019 at the latest
Cost to banks of between £4bn-7bn
Another of the ICB's recommendations is that banks must have a buffer to absorb the impact of potential losses or future financial crises - of at least 10% of domestic retail assets in top-quality form, such as shares or retained earnings.
That is a stiffer target than the 7% recommended by the international Basel Committee on Banking Supervision.
It also says the biggest banks should go further than this and have a safety cushion of between 17% and 20% of assets, made up of highest-quality assets topped up with bonds that can be easily converted to equity.
The business lobby group, the CBI said this would not help business.
The CBI's deputy director-general, Dr Neil Bentley, said: "The proposals on capital requirements are out of step with internationally agreed measures underway so will increase the cost of lending for UK businesses, putting them at a disadvantage to their overseas competitors."
The commission also recommends that steps should be taken to make it simpler to switch bank accounts, something that was welcomed by the CBI.
The ICB wants a free current account redirection service to be formed by September 2013, with an improved system to catch all credits and debits going to a customer's old, closed account, including automated payments on debit cards and direct debits.
Costs and benefits
The BBC's business editor, Robert Peston, called it the most radical reform of British banks in a generation, and possibly ever.
He said it would be hated by the biggest UK banks, Royal Bank of Scotland (RBS) and Barclays.
He pointed to the report's analysis of the costs and benefits of the reforms, which estimates the social costs of its proposed reforms - the costs for everyone in the UK, rather than just for banks' creditors and investors - as between £1bn and £3bn a year.
That compares with the annual £40bn cost of lost output that follows periodic financial crises, he said, adding: "If the commission's calculations are even vaguely in the right ballpark, it will be very hard for banks to resist the changes."
The British Bankers' Association (BBA) said banks had already begun the process of making themselves safer.
"UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained," the BBA said.
'Into the unknown'
Michael Symonds, an analyst at Daiwa Capital Markets, said there was a danger that the changes would damage UK banking's international competitiveness.
"Into the unknown we go, in terms of the recommendations," Mr Symonds said. "The main issue really is the fact that the UK is going it alone on their structural reforms and the potential damage it will do to the competitiveness of the UK banking sector and economy as a whole."
Bank shares all fell sharply in early trade with Barclays, Lloyds and RBS all down about 4% and HSBC down 1.6%, although by mid-morning they had recovered of the ground lost. Bank shares globally were lower on Monday on continued concerns over the eurozone and its debt crisis.
There is a view that regulating UK banks could push some to leave the country in search of a place where regulation is lighter.
Debate in the papers
Commentators are divided over the effect of ring-fencing the investment from retail side of banks.
David Wighton argues in the Times it is a knee-jerk reaction, creating regulation which will "strangle any recovery".
However, the Independent's Mary Ann Sieghart says lending to businesses will be allowed inside the ring-fenced retail arm, meaning the cost of loans will not rise.
In the Financial Times, the former chairman of the Royal Bank of Scotland, George Mathewson, says splitting banks' activities is not the real danger to banks. He says imposing higher capital requirements, which will reduce bank returns and their ability to lend, poses a much greater threat to the UK's economic recovery.
Sir John said he thought this was unlikely, at least as far as High Street banking was concerned.
The ICB was set up last year to look at how taxpayers could be protected from future banking crises.
The credit crisis ultimately led to the government nationalising Northern Rock and part-nationalising Royal Bank of Scotland and Lloyds.
The government now has stakes of 83% and 41% in RBS and Lloyds, respectively.
The ICB said its proposed reforms could result in a pre-tax cost of between £4bn ($6.4bn) and £7bn for Britain's banks, something Sir John said would be unlikely to be felt by individuals.
He said the cost would be about one-tenth of 1% to customers, with the banks themselves absorbing some of the costs.
"How much of this passes through to the customer? It's not going to be a large amount whatever. We believe that most of the cost increase will be felt outside the UK retail ring-fence, rather than within the arena of UK economic activity. We also believe that a portion of the cost increase will be absorbed by the banks, so it won't all get passed through."
So all political parties are linking arms and singing over this thing? It was really suck then.
Quote from: Valmy on September 12, 2011, 02:30:00 PMSo all political parties are linking arms and singing over this thing? It was really suck then.
This is what our system does to deal with difficult issues. Appoint a Commission of respected and fearsome experts, which removes the politics from the proposals and argue around the periphery. It's why all parties support increasing the pension age (a Blair-appointed Commission), the question is how quickly; or why all parties supported implementing the Beveridge report, but only Labour promised to implement it in full; or the basis of the 1944 Education Act that established grammar schools.
There's a couple of examples of it not working like that, university funding is a recent one.
There's nothing in there that I can see (or in the US reforms either for that matter) that would have prevented the crazy mispricing of subprime mortgage securities or eurozone sovereign debt or the massive exposure to subprime default that AIG assumed.
Quote from: Admiral Yi on September 12, 2011, 02:47:13 PM
There's nothing in there that I can see (or in the US reforms either for that matter) that would have prevented the crazy mispricing of subprime mortgage securities or eurozone sovereign debt or the massive exposure to subprime default that AIG assumed.
That's not the goal. The goal is to make it possible for banks to go bust. The idea is that if the retail banks are ring-fenced from the investment bank, and have higher capital requirements then the investment bank can collase causing a shock, but not causing a financial crisis that affects personal and business lending so much that the state has to intervene. The Commission was asked to come up with a solution to 'too big to fail'.
Quote from: Sheilbh on September 12, 2011, 02:51:01 PM
That's not the goal. The goal is to make it possible for banks to go bust. The idea is that if the retail banks are ring-fenced from the investment bank, and have higher capital requirements then the investment bank can collase causing a shock, but not causing a financial crisis that affects personal and business lending so much that the state has to intervene. The Commission was asked to come up with a solution to 'too big to fail'.
AIG did not have a retail bank component. Neither did Lehman.
Quote from: Admiral Yi on September 12, 2011, 02:53:50 PMAIG did not have a retail bank component. Neither did Lehman.
Lehman's wasn't bailed out. In Britain we didn't have a crisis like AIG. Our crisis was in universal banks that had enormously leveraged investment wings (such as Royal Bank of Scotland) and had to be nationalised or forced into shotgun mergers.
Edit: Incidentally the 17-20% figure is similar to the voluntary 20% capital requirement Switzerland's pushed through. I think that it's right that we're at that sort of level given that we're both small-ish, very globalised companies with an outsized financial sector.
Quote from: Admiral Yi on September 12, 2011, 02:53:50 PM
AIG did not have a retail bank component. Neither did Lehman.
Other banks down the chain did, though, like BoA or WaMu (remember that one?)
Quote from: DGuller on September 12, 2011, 03:04:58 PM
Other banks down the chain did, though, like BoA or WaMu (remember that one?)
Washington Mutual had an investment banking arm?
Quote from: Admiral Yi on September 12, 2011, 03:08:27 PM
Quote from: DGuller on September 12, 2011, 03:04:58 PM
Other banks down the chain did, though, like BoA or WaMu (remember that one?)
Washington Mutual had an investment banking arm?
Never mind about that one. I was under impression that they were done in by the financial instruments, but quick perusal of Wiki seems to indicate that they just lent too much to the wrong people at the wrong price.
I wasn't aware BoA did either, until they acquired Merryl post crisis.
Quote from: Admiral Yi on September 12, 2011, 03:18:46 PM
I wasn't aware BoA did either, until they acquired Merryl post crisis.
Well, that's what sunk them. The toxic shit they bought up would up infecting the real banking.
Quote from: DGuller on September 12, 2011, 03:22:22 PM
Well, that's what sunk them. The toxic shit they bought up would up infecting the real banking.
I think most of their crap came from Country Wide.
The FT seems to think that the banks are (mostly) off the hook :
http://www.ft.com/cms/s/0/43ba6ef2-cf30-11e0-b6d4-00144feabdc0.html#axzz1XnrU4cjT
Sorry, that link is behind a paywall, unless you access it via Google Finance.
Sounds good. We should do the same here, but won't.
I've been saying we should seperate high street banks from the big international gambling banks for some time, good they're trying to get something in place.
Apparently it's going ahead in full.
QuoteVince Cable says Vickers report will be accepted to prevent bank bailouts
Business secretary to present united front with Conservatives over 'ringfencing' of banks' retail and investment arms
George Osborne and Vince Cable will push ahead with plans to prevent future state bailouts of the banking industry by separating high-street lenders from "casino" investment banking.
Amid tension in the coalition over David Cameron's handling of the euro crisis, the chancellor and business secretary will present a united front on Monday, backing a report by Sir John Vickers's independent commission on banking that proposed lenders should be forced to "ringfence" their retail and investment banking arms.
Cable told The Andrew Marr Show on BBC1 on Sunday that the banking industry was set for "big structural reform". "The government is going to launch this initiative on the banks, accepting in full the Vickers commission," he said. "We're going to proceed with the separation of the banks – the casinos and the retail, business lending parts of the banks ... Moreover we're going to get on with it. Both the primary and secondary legislation is going to be completed within this parliament. It's got to be done. We can't have a position where the big banks are too big to fail."
When the commission's recommendations were announced in September, the chancellor promised legislation would be passed before the next parliament, but added that he would also stick to the timeframe set out by Vickers, who argued banks needed until 2019 for full adoption of the plans. The date coincides with deadlines for further international banking regulations.
The proposals also do not go as far as the full-scale split between high street banks and investment banks, which Cable called for in opposition. However, the commission is convinced that ringfencing – which forces the banks to put high-street banking into a separate legal subsidiary that will have to hold capital of at least 10% – is a more practical way of ensuring there will never be another taxpayer bailout of banks.
However, there are differing views, many contained in a broad collection of essays on the report published by the Centre for the Study of Financial Innovation thinktank. One, written by Stani Yassukovich, a former investment banker and one-time head of the predecessor to the Financial Services Authority, the Securities and Futures Authority, argues: "Following publication, we can expect the lobbying [of government by the banks] to reach fever pitch. Of course, in the real world, one would expect the views of those responsible for the mess prompting the reform to be heavily discounted by those responsible for executing the reform. But politics and the real world have little in common. Since the political class has a lamentable lack of understanding of how finance actually works, it is forced to rely on advice from roughly the same crew that sank the ship in the first place, in determining how the ship should be remodelled".
The preparation of a green and then a white paper is expected to take several months, so bankers are expected to launch fresh attempts to persuade the government to soften some of the recommendations, which also include plans to force banks to set aside more cash to cushion the blow of potential losses or future financial crises. One of the most contentious areas is the flexibility around what sits inside the ringfence, which Osborne is not expected to spell out in his statement.
Vickers is clear that deposits and overdrafts of retail customers and small businesses should be inside, while wholesale and investment banking operations, such as derivatives and trading activities, will be outside. Even so, it looks as though it will be up to the banks to decide whether to put their large, non-financial, corporate clients inside the ringfence.
The banks say they are braced for the government to implement the plans but argue that the estimated costs, of £4bn to £7bn, are too low, and could be closer to £12bn. The new legislation is also expected to heighten suggestions from banks, particularly HSBC, that they might move their head offices away from London, with the implied threat of fewer UK jobs and tax revenues.
The independent commission on banking was chaired by Vickers, a former head of the Office of Fair Trading, and was set up by the government last year to conduct a full review of the sector after the financial crisis four years ago left banks including Royal Bank of Scotland and Lloyds needing bailouts.