I think the recent announcement that the ICB recommends that the banks “firewall” themselves from their investment arms being received by general praise a bit shocking. Everyone running around patting themselves on the back for a recommendation that would give the banks until 2019 to semi-reorganise themselves is shocking. For an issue that came to a head in 2007, to say after considered response that we might have a partial solution, maybe, by 2019 and to say that is at all acceptable is shocking.
While Marx may not have been right about communism, he was far more right about what was wrong with capitalism. We have a group of people that are willing to take big risks on financial instruments and argue that if they don’t pay themselves above market rate bonuses then someone else will trying to tell us that they need a level of regulation, but only if it takes forever to implement and something we aren’t entirely sure will work. There is this desire by the UK government to not go anywhere boldly, quickly, for fear of finding themselves alone. But with sovereign governments being talked about being “safely brought into bankruptcy” as the German’s are now saying about Greece, now is the time for swift and decisive action, not half-hearted attempts.
Bailing out Northern Rock was absolutely the right thing to do at the time, and now being hard and decisive on the banking industry is the right thing to do. How can we be so decisive about scrapping the 50p rate, scrapping public sector pensions and even building high-speed rail links, but screw around with our banking system? Bankers whinge about the impact of raising capitalisation rates, but again, they would, it is in their best interests to keep the capitalisation rates low. Like anyone really wants to pay their taxes. I can come up with all sorts of reasons why it is unfair of me to pay my full tax burden and how hard it is, doesn’t change the fact that I need to pay my taxes, but if you ask me, I will kindly say no. The ICB is the same thing, while independent, are bankers. As we say in the States, how many turkeys would vote for Thanksgiving?
If you need an example of what separation between retail and investment banking does, with strong capitalisation requirements, look at Canada. Essentially unscathed in the global downturn, Canada readily points to its strong regulation that separates the two types of banking. They have that now, not in 2019, as a suggestion.