Banking reform and the Vickers Report

[Tony]

HMG has said that is will be generally accepting the ICB Vickers Report, so do you think that it will prevent future banking disasters in the UK and maybe beyond?

 

in short:

 

• The taking of deposits from retail customers and SMEs should only be provided by banks ringfenced from other banking services. It should not be mandatory to include private banking for high net worth individuals or corporate banking within the ring-fence
  
• Ring-fenced banks should be prohibited from undertaking certain investment banking activities
  
• The ICB's recommendations on loss absorbency for banks are accepted and will require big UK banks to have a loss-absorbing capital capacity of 17%. This will apply not just to UK assets but also to non-UK operations except where the banking group can demonstrate that the operations do not pose a threat to the UK taxpayer
  
• The government considers that all UK banks should be subject to normal competitive market forces - and should be able to fail safely without relying on a government guarantee and without putting the provision of critical services at risk
  
• The government considers that all banks - including non-ring-fenced banks - need to be resolvable without the use of state resources. The Vickers Report recommendations need to be complemented by a tesolution regime that covers investment firms and financial holding companies as well. The government supports bail-in debt as part of this regime
  
• Increased competition in banking services is supported - as recommended by Vickers - including, in particular, a strong and effective new UK bank challenger to the biggest UK banks.
  
• The government supports depositor preference 'on balance' but believes that further analysis and consultation is required
  

 

Link to the full report: http://bankingcommission.independent.gov.uk

[green]

Nearly missed this very good question and topic. I fear a lot of knowledgeable people on this forum have aswell.

 

Im pleased that the Vickers report is being agreed and passed through parliament, but lets face it, whether its 2015 or 2019 it will be too late.

 

The likelihood of us getting through the next 12 months without the Euro collapsing is low.

 

Our banks have been insolvent for some time, but with QE, bailouts and comical purchasing of loans from the ECB to buy more debt, they have been on an IV drip since 2008.

 

MF Global collapse in the last couple of months have proven that banks dont adhere to rules. They merely make them up as they go along if they are in the UK, and if they are in the US, they get their politicians to change the rules for them. Depositors monies have "gone" and people who thought they bought gold, no longer have it. The monies have disappeared, and thanks to our wonderful City of London, which is completely unregulated, the chances of depositors seeing it again is pretty darn slim. Fraud is endemic in the City and the Vickers report is a plaster in the first aid box which has a large amount of dust on it.

 

What is your thoughts Tony?

[I1L2T3]

It's most of everything we should already have but in 2019 it will be well over a decade too late.

 

I guess it's reasonable to hope that Vickers can be used as a blueprint for reform when we have the inevitable financial collapse, likely well before 2019 anyway.

[Anna B]

Too little, too late...

[Nagel]

It's a step in the right direction when we really need a sprint in the right direction.

[Tony]

What is your thoughts Tony?

 

As you'd imagine green, I have lots of thoughts, and overall I support the broad aims and some of the methodologies proposed.

 

However it isn't nearly radical and far reaching enough for me. I'm not a fan of punishing people or vilifying them just because they have something that I don't have, so enforced redistribution is not an option for me. Property is not theft, it is what creates our society and allows us to progress and innovate. I am happy to let everyone rise or fall to the level that matches their capacity, with adequate support where required.

 

I am not a fan of additional legislation either, ever. Conceptually and practically I prefer less but better regulation since it is the volume of regulation that creates the dark corners for pushing the envelope in an unsustainable manner by the minority of people who are more interested in their cash than the product enjoyed by others.

 

So, what would I do differently were it possible?

 

Simply, as a government I'd legally underwrite the personal and corporate assets and liabilities of the businesses in question as an entity separate to the business. I would then throw them to the market to see who survives with a pamphlet sized rulebook. If a financial institution gets into trouble I would let them go pop if that is what the market and law demanded, while recovering the assets and liabilities contingent on those assets, package them in a series of clean wrappers and sell them back to the market at a profit, retaining the profits in the Big Society bank.

 

How does that sound?

[green]

As you'd imagine green, I have lots of thoughts, and overall I support the broad aims and some of the methodologies proposed.

 

However it isn't nearly radical and far reaching enough for me. I'm not a fan of punishing people or vilifying them just because they have something that I don't have, so enforced redistribution is not an option for me. Property is not theft, it is what creates our society and allows us to progress and innovate. I am happy to let everyone rise or fall to the level that matches their capacity, with adequate support where required.

 

I am not a fan of additional legislation either, ever. Conceptually and practically I prefer less but better regulation since it is the volume of regulation that creates the dark corners for pushing the envelope in an unsustainable manner by the minority of people who are more interested in their cash than the product enjoyed by others.

 

So, what would I do differently were it possible?

 

Simply, as a government I'd legally underwrite the personal and corporate assets and liabilities of the businesses in question as an entity separate to the business. I would then throw them to the market to see who survives with a pamphlet sized rulebook. If a financial institution gets into trouble I would let them go pop if that is what the market and law demanded, while recovering the assets and liabilities contingent on those assets, package them in a series of clean wrappers and sell them back to the market at a profit, retaining the profits in the Big Society bank.

 

How does that sound?

 

Dont pass out, but we are both on exactly the same page. I agree completely with you. I detest regulation, but, as been proven time and again in too many industries now, some regulation is needed to ensure the customer is not ripped off and the industry itself isnt abusive.

 

The financial industry especially the City of London is highly secretive and unregulated. It is being blamed for the abuses of AIG, Bear Sterns and MF Global. The USA have more stringent regulations than us, and therefore all the main banks in the States and Europe have based themselves in the City and abuse our lack of regulations.

 

I do believe many in the Financial markets are fully aware of the abuses that have and continue to happen, and unless we start to bring some people to task the situation will only get worse.

 

The main problem i forsee today is that people see only 3 possible parties that can change the disruption to our lives in the future. However, i firmly believe that all of them would have done what Brown did and bailed the banks, so what is the alternative? The lack of a debate on the crisis, and the assumption that their was only 1 way out by our press & tv and politicians, allows more dissatisfaction from the electorate. Whats happening in Greece today, may happen to us tomorrow, but yet we are not allowed to think or talk about it. If our banks crash again, they will be bailed again, and our debt ratio will sink the pound and our stock market.

 

You should read this blog Tony, there are some amazingly well informed individuals on it and ive learned a mass of information from it.

http://www.golemxiv.co.uk You may need a couple of weeks free to read the articles and great commentary, but its worth it.

 

How do you think the next 12 months will pan out Tony, do you think a new banking crises may happen?

[Tony]

Thanks for that link.

 

The next 12 months? I think that the next banking crisis is here now and that it has been for 3-6 months, it just hasn't manifested itself in a way that is apparent to Joe Public. The PIG's are all bust and voters won't take the medicine. The Euro is bust and politicians are playing for time, but I can't see where their end game is. Britain and the £ sits nicely outside this albeit with huge contingent liabilities.

 

The bad medicine is coming whether we like it or not. The UK is already 2 years ahead and will reap the benefit 2 years before the delaying nations. It isn't going to be nice in the mentime though.

 

At the end of it everyone with any sense will realise that the entire post war welfare system has to end because there just isn't any money. We will work harder, for less, with less entitlement.

 

However, the great thing that will come out of it is that we will rediscover community, self-reliance, and by necessity we will let the State and it's vested interests diminish in both size and importance.

[Hairyloon]

At the end of it everyone with any sense will realise that the entire post war welfare system has to end because there just isn't any money.

That is just a load of twaddle. There is more money now than there ever was before.

Almost everybody in the world is better off than they were after the war, it is just that everybody's expectations are now so much higher.

 

People these days think they're poor if they don't have two foreign holidays every year and a new TV every second one.

[Tony]

You're ignoring one vital point. The number of people.