15 Dec 2010

Despite Cable’s HBoS probe hint Britain needs banking catharsis

It says a lot, that we have learnt more about what brought down RBS from a US diplomatic cable leaked to an Australian than we have from British probes.

The FSA has now relented, U-turned, thanks to some deft work from Treasury Committee chairman Andrew Tyrie, and some pressure from the Business Secretary Vince Cable. Yet I am not alone in feeling somewhat sceptical that the report that emerges in March will be helpful.

It is highly peculiar that RBS has a legal veto on the information to emerge. It could even be described as bizarre that the FSA’s own conduct in merrily waving through RBS’s suicidal purchase of ABN AMRO, weeks after the credit crunch had started, will be conducted, by, yes you guessed it, the FSA.

The original decision to disclose 12 sentences of an 18 month investigation betrays the return of the “Golden Goose” mentality. (That is banking lays the Golden Egg for the economy so let’s not be too harsh, old boy).

There seems to be little appetite to rock the banking boat. Disclosure of bands of bonuses has also been nipped in the bud, even for bailed-out banks. Not the case in the US: (Sample fact: 1 in 30 Goldman employees got a $1m plus bonus). Any chance of the Bank of England releasing a Fed style US spreadsheet of every liquidity support loan? I doubt it.

Significantly some brave voices from within the banking establishment, some even on the board at HSBC, spoke out at the FSA’s unwillingness to publish a report. More leadership like this is required.

Why on earth, as in the US, Sir John Vickers’ Independent Commission on Banking was not given powers to trawl over what went wrong in UK banking before deciding what should be done, I do not know. Of course the US equivalent did have this power. Vince Cable just told Jon Snow: “The IBC is a forward-looking report – it’s not an investigatory report.” Why not?

But the Business Secretary, who today met with the FSA Chairman Lord Turner, did leave this tantalising hint about another bank poisoned by egregious excess in property lending, and being probed by the FSA.

“Certainly in the case of HBoS there may well be more far-reaching recommendations,” Mr Cable told Channel 4 News tonight. Rather tantalising.