Tuesday, 15 November 2011

Why Vickers must happen now

Just occasionally the toxic liabilities hidden by common consent in the depths of the UK banks surface. I'm talking about the $10 trillion of worthless derivatives, of course. As UK banks' direct exposure to Greece was discussed, there didn't seem to be a problem; direct loans of some £1.6bn were outstanding, and at risk. Pfft. Our banks are big enough to swallow that. Then came the 'but' - in addition there were worthless derivatives of some $60bn linked to Greek activities, which a Greek bank failure would expose. Ah, that's different, then. 

Until we insulate the working economy from these liabilities, until the Vickers reforms are implemented, we will all be held liable for these toxic assets. 2019 is far too far away. We need separation by the end of 2012 at the very latest. As the Euro zone disintegrates, as surely it will, so will European banks start to fall and like a Fred West Open Day, the bodies in the cellar will start to surface. The buccaneer banks with their toxic derivatives must be allowed to collapse and go if trade, manufacturing and the real economy, all of which are robust, are to survive. 


Barnacle Bill said...

We should have had separation in 2008, when the Bufty frae Kirkcaldy was trying to save his beloved Scottish banks.
However hindsight is a wonderful thing!
Vickers reforms should be at the top of the coalition's legislation list for the rest of this year. The sound of falling banking dominos is getting ever closer to these shores.
If Cast Iron isn't on the ball here he's going to be caught with his short trousers dangling around his ankles.
Unfortunately we'll be the ones suffering the pain - again!

Weekend Yachtsman said...

Unfortunately the Vickers reforms have been vetoed by the EU.

Basically, they fall foul of the fact the the EU plans to introduce its own reforms, which naturally will take precedence, and Cameron has been told by his bosses not to implement anything else in the meantime.

Out now!

DerekP said...

Good post.

I can't understand why this isn't receiving more public attention. It's like we're just standing there waiting to be punched in the face again.

Anonymous said...

Umm the "$10 trillion of worthless derivatives" leaving aside the judgement of worth, you sensationalise the number by looking at gross not net exposures.

TrT said...

I'm yet to see how exactly we would "ring fence" these toxic debts, or indeed, how useful such an exercise would even be.

If Bank A has promised to Pay Bank B 90% of Bank B's losses on Brazillian Second Hand Car Loans, and taken a fee for that service.

Bank B is not going to quietly sit there as Bank A pockets the fee and transfers the risk to Bank C, which has assets of piss all and will fail on contact.

Demetrius said...

This is potentially very nasty indeed, quite when or where the first zombie emerges from the soil is an open question.

outsider said...

Weekend Yachtsman has it.

I believe that the 2019 deadline was stipulated by the EU. It is one of so many measures that are paraded as UK Government initiatives but are in fact pre-determined in Brussels. Other recent examples include HS2 and Mr Cameron's initiative to protect children from internet porn, which was to meet an EU deadline.

There must be some way for Parliament to oblige Government to be open about this, though vested interest and amour propre will doubtless prevent this happening.

Raedwald said...

Anon 12.39 - $10tn IS the net exposure of UK financial institutions; the global gross value of 'worthless' derivatives is still not much less than the $500tn it was in 2008. But as you say, collapse all the trades back and the net global liability is much less.

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