By Ian Fraser
Published: Sunday Herald
Date: 3 September 2011
As leader of the opposition, David Cameron gave the impression he intended to be tough on the banks. In an interview with Sky News in January 2009, he called for criminal actions against bankers and earlier said we needed “a day of reckoning” for those who presided over the near-collapse of UK’s financial system.
After 18 months in Downing Street, Cameron has gone soft. Following a concerted lobbying campaign from bankers, lobbyists and neoliberal friends at the CBI, laced with disingenuous scaremongering and talk of economic Armageddon if reforms are enacted, Cameron is backtracking. He has reportedly been persuaded to delay reforms until after the 2015 election.
The banks are delighted. Sir John Vickers’ Independent Commission on Banking, which reports a week tomorrow, will almost certainly recommend that they should be forced to separate out their retail arms from their “casino” or investment banking activities, to raise their capital buffers, and that greater competition should be introduced to the sector. Among other things, the reforms would require bankers to manage their businesses better and possibly also reduce their pay.
If the banks do manage to get the reforms delayed, they believe they might be able kick them into the long grass forever. By 2015, the clamour for change might have dissipated.
But, although the Vickers reforms are imperfect, delay is the last thing that we need. We got ourselves into the present pickle – in which “zombie” banks remain reluctant to lend and remain dependent on taxpayer bailouts in the event of crisis – because the government of Gordon Brown was far too soft on the banks, giving them near unconditional bailouts in October 2008.
Yes, there were top-level clear-outs after that crisis and a few superficial changes were made. But the next tier of management remained in place and has carried on pretty much as before. The banks’ license to act as “rent gougers“, parasitical on the wider economy, remained in place, as did the implicit state guarantee.
Not everyone in cabinet believes in letting the banks off the hook. Liberal Democrat members of the cabinet Vince Cable and Danny Alexander, for example, want to see Vickers enacted. There’s going to be some pretty fierce infighting after Vickers’ final report is published on September 12.
Cameron ought to be taking his lead from the US Federal Housing Finance Agency (FHFA), which is suing 12 US and international banks including Bank of America Merrill Lynch, Barclays, HSBC, Goldman Sachs, JP Morgan Chase and RBS for scores of billions after they allegedly misrepresented the quality of mortgage securities. He needs to read the banks the riot act, not mollycoddle them.
An edited version of this article was published in the Sunday Herald on September 4th, 2011