Yesterday marked the publication of the final report and recommendations from the Independent Commission on Banking led by Sir John Vickers. Buried within it are some eminently sensible ideas. Banks would be required to ring-fence their retail divisions to protect them from shocks to investment markets for instance, and hold greater quantities of capital as a reserve. Some new ideas have also been put forward to encourage competition in the financial services, and so reduce Britain’s reliance on a few, large banks that are “too large to fail”. Despite perhaps being too conservative in places, such as dragging the reforms out to 2019 and not completely splitting up retail and investment banks, overall the ideas are sound and properly thought through.
It was something of a surprise then to see people lining up to take chunks out of the proposals. It was obvious that the banks themselves would be opposed, simply because their short-term profit may be damaged, but to see so many Conservative MPs falling over themselves to destroy them was quite a shock. Their excuse? That such reforms would reduce the banks’ profits and damage the economic recovery and growth. To a certain extent this is true. Of course any changes will cost the organisations that have to implement them, including banks, and that may to a small degree harm growth. However, to delay, or even stop altogether, these reforms would be a grave mistake. We can not sacrifice long-term security for short-term profits. There will be another banking crisis at some point in the future, and when it comes we must be better prepared than we were in 2007/8. The idea that we can afford to wait until this recession is over because we will not face another financial crash for a while is also deeply mistaken. You only have to look at the last few weeks and months to see that threats abound for our economy, particularly from American and European debt, to which our banks are heavily exposed.
Which is why the Vicker’s reforms must be implemented as soon as practicable. But that will not happen if it is left to the Tories to decide, and their backbenchers to ruin. This is one of the best chances for the Lib Dems in government to make a lasting difference to Britain, and one that would surely be recognised by voters. In particular, Vince Cable must continue to apply both private and public pressure on the Chancellor to see out these changes. However, Labour too has a part to play. Yesterday Ed Balls admitted that his government had not done enough to regulate the banks. This is his chance to put that failure right and compensate for the other mistakes of the Brown administration. This is too important an issue to be turned into a political football; instead all parties must work together to make sure that the next generation of banks are less prone to failure and that the economy is better protected, unless we want to suffer another catastrophic banking collapse.