3 Sep 2009

Should banks’ growth be stopped?

Size does matter to the G20 finance ministers. We know this in relation to the extent of the recovery. Some feel recovery has bedded down sufficiently to allow talk of ‘exit strategies’ from the extraordinary stimulus seen around the world.

Others, including the chancellor, fear that “the biggest single risk to recovery is that people think the job is done“.

We also know that quantum matters in relation to our banks, because almost a year ago in Washington, an unprecedented meeting of 20 world leaders decided that 30 of the world’s largest financial institutions would not be allowed to fail.

In the aftermath of the Lehman calamity it was a sensible piece of global financial solidarity, designed to inject much-needed confidence.

One year on, with the most tangible effect of this promise is that we are not in a second great depression. The second most tangible effect is that some of those same banks are coining in huge profits at almost no risk.

So there are two key areas for a hugely important meeting of the world’s 20 most important finance ministers at the Treasury tomorrow – the banks and the boost.

I have just returned from interviewing Lord Turner, the Chairman of the FSA. He expressed some concern that it was ‘dangerous’ to mix up the role of regulator and industry promoter. He seemed strongly to point towards ‘a tax on size’ to deal with banks that were too big to fail.

On bonuses, he pointed to the need for politicians to decide on reining in their size. The FSA’s job, he says, was to take the financial stability risk out of bank pay packages, but that some banks were now making relatively large risk-free profits. More on Lord Turner to come later.

The real dilemma for our finance ministers is posed by Nouriel Roubini: “The sense of urgency to implement important regulatory reforms agreed during the last G20 meeting is receding.”

We have an absolutely stellar cast of figures discussing on air tonight including one economist now in the White House who pointed the finger squarely at the City of London. There’s a cracking live discussion too. Your questions are welcome as ever.

Lord Turner seems to agree that there is a short window of opportunity.