11 Apr 2011

Banking report: still too big to fail?

It’s hard to imagine a more respected operative to answer the question – “what’s to be done about the banks?” Sir John Vickers is the Master of All Souls College Oxford, a former Chief Economist at the Bank of England, a former regulator, and a man whose academic research focuses on the economics of competition and regulation.

But is his report, in a sense, an Inside Job (see my blog on the Oscar winning documentary that spells out who got us into the banking meltdown and who is still in the system pulling the levers). Inside Job in the sense that the changes will take place inside the institution, there will be no external sign for wider society to see. Vickers’ interim report is no revolutionary manual. His rejection of a complete separation between “casino” banking and “retail” banking calms City nerves. Firewalls between these activities are his solution.

When you talk to senior City operatives, the banks they talk about are surprisingly not the state owned ones, but the PLC operations like Barclays who, whilst never bailed out, did take up taxpayer-provided funding to secure their activities. It’s hard to see how, if a big name bank failed in one sector, it would not inflict irreparable reputational damage on the whole bank. And we shall once again depend on regulators who have failed in the past, to detect and move on what is going on.

In short, banks in the UK, despite Vickers, most experts say, will stay more or less as they are now – unprosecuted. And the tax payer will still pay.

Cross the Atlantic to today’s news – US regulators to prosecute or sue the executives and directors in more than 100 lawsuits. The Federal Deposit Insurance Corporation is to make an example of “over aggressive executives or inattentive directors of the 348 banks that failed in 2008 and after.” $80bn is estimated to be at stake.

How many British banks and bankers have been prosecuted or sued by our own regulatory authorities? How many are to be prosecuted?

Banking? Still an Inside Job?

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