Sunday, 23 January 2011

No requirement to split banks unless they fail

You have to read John Vickers words very carefully to hear the message he is sending above the bluster and outrage of the financial sector's noise telling us what they want him to say. Vickers is making absolutely no suggestion that banks should be split up now, no suggestion that banks' buccaneer and retail arms operate under separate management and governance arrangements, let alone under separate badging, no suggestion that ownership and shareholdings be split. But you wouldn't know that from the pompous and windy threats coming from the financial sector. What Vickers actually said was;
"Credible resolution would seem to require at least some form of separability, and arguably there is a case for some form of ex ante separation so that bank operations whose continuous provision is truly critical to the functioning of the economy can clearly be easily and rapidly carved out in the event of calamity".
For those in the banking sector whose English isn't up to scratch, allow me to explain that separability doesn't mean the same as separation. What Vickers is saying is that banks will need to be utterly transparent in advance about the assets and liabilities, the capital provision, that belongs to the retail arm and that which belongs to the buccaneer arm, so that in the event of the failure of the latter the banks are prevented from using retail capital provision underwritten by the taxpayer to bail out a failing buccaneer venture, and the risky business can be allowed to fall whilst preserving the critical retail arm. That's all. It would also prevent international banks from transferring retail assets to other jurisdictions in the event of collapse - but wouldn't of course prevent them from transferring capital provision into the UK to prop up their casino business here. 

Now that Vickers has told us what he's minded to do so far in advance of his final report, it intelligently allows other States to consider similar measures, to close-off the banks' options of fleeing abroad with the loot, as they're threatening. It also allows for the no doubt complex legal and legislative provisions to be designed, and gives fair warning to shareholders that the days of profit at Joe Public's expense may be drawing to a close.  

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