Banking reform: is this Osborne speaking or is it Cable?

george osborne

Today's unveiling of the key principles of the Banking Reform Bill are at the tougher – much tougher – end of the spectrum than most people expected. They are certainly  closer to what Vince Cable wanted to do to prevent another banking crisis than what George Osborne probably expected to be announcing.

Does this represent a triumph for the Lib Dems in the increasingly tense and bitter world of Coalition politics?

Yes and No.

The measures announced by Mr Osborne this morning go about as far as you can without actually enforcing a break-up of the banking conglomerates (by which I mean those banks that have both retail and investment banking arms in the same corporate entity) and this has been the main thrust of the Cable-inspired Lib Dem policy since before the last General Election. Looking at the proposals, coupled with the already announced regulations about the capital holdings required to underpin different types of banking operations, it seems highly likely that many banks will opt to split. I think one of the key proposals is that even if they stay in the same corporate entity retail and investment banks will be required to have different chief executives. A board finding itself holding the ring between two powerful CEOs will find the temptation to separate the two through a de-merger hard to resist.

So, the Lib Dems will get the separation they believe is essential to a successful overhaul of the banking system.

Osborne passionate? Well, almost
However, listening to the Chancellor and reading his speech afterwards I was struck by the – relative – passion he deployed. I say relative because I can't recall George Osborne ever appearing truly passionate about anything, one of his shortcomings as a frontline politician.

He talked alot about people's anger at the banks but the one point in his long speech he joined his anger to the public's explains why these reforms are now as much Mr Osborne's as Mr Cable's.

Having set out the background, he told us what had made him angry too:

"the mis-selling of interest rate swaps to small firms who went bust as a result; the greed and corruption on the LIBOR trading floor".

vince-cable-mpYou can easily imagine how the debate on banking reform after the Vickers Commission progressed within the government. Mr Cable would have been pushing hard for a set of rules that went as far as possible towards separation while Mr Osborne would have been looking for a less prescriptive regime. Than comes the interest rates swaps scandal. Then follows the LIBOR rigging scandal. And George turns to Vince and says: "I think we need to throw the book at this lot as it is clear than just don't get it". He acknowledged the Business Secretary's role in his speech just in case we didn't understand that they are now as one on this.

And he has really thrown the book at them, making it clear that he will "electrify the ring fence", telling them the sanction if any fail to get that right will be mandatory separation, making it clear that the restrictive access to the payment systems that has inhibited competition will have to end and, the final insult, telling them that the Parliamentary Banking Commission chaired by Andrew Tyrie has been asked "to look at how to improve the professional standards and culture of the banking sector". Not even a passing acknowledgment of the professional bodies operating in the banking sector. Ouch.

This is one policy the Coalition is united on and, judging by their initial responses, pretty much supported by the Opposition too. The banks' goose is cooked.



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