Politics and the Vickers Report
What is really going on with the Vickers Report?
The Vickers Report has come out on the radical side of what was expected in terms of structural change for the banks and on the conservative side in terms of timescale.
But the real action now is political: George Osborne has praised the report, accepted the timing, but not yet the detail.
What the banking lobby tried to do was to;
a) fight the ring-fence proposal;
b) fight the capital adequacy proposal;
c) divert the whole debate into one about competition in which they were encouraged by the inclusion of Clare Spottiswode, serial competition guru;
d) nobble the whole project, last minute, with the inclusion of two further criteria in the Vickers committee's remit, namely: does it harm the UK economy, and does it harm the UK's tax take.
The banks will go on fighting the substance. Jamie Dimon of JP Morgan has said today that the USA should pull out of the key international treaty Basel III that the Vickers proposals are built on.
But on the "nobbling" issues, will the banks flee Britain, harming our global competitiveness and punching a permanent hole in the UK budget?
Vickers has put reasoned arguments against - the effects on the fiscal position would be complex, but should be strongly positive and any economic impact resulting from the effects of its proposals specifically on UK competitiveness, including that of the City, should be broadly neutral or positive, especially over the longer term.
Both these positions will be disputed by the banking lobby and will form the terrain of an argument within government now between Vince Cable, who wants the whole thing and legislated fast, and a variety of people who will argue for a further delay while the competitiveness argument is rehashed.
To be clear, Vickers says the UK banks will suffer in competitiveness terms, but that this is not a major problem for the UK economy.
If banks were fishing fleets this would be a done deal: visit Hull to see how much governments have cared about fishermen, when balanced with whole economy issues.
But the banks have, especially under New Labour, become used to dictating policy on banking. The terrain of their rearguard action is clear - reput the argument that this will harm UK competitiveness and enlist the Bank of England's financial stability chief to argue for maximum delay.
However there is one problem - markets. Markets will price in any regulatory reform immediately they think it is going to happen. They are already pricing in Basel III, and financial institutions' behaviour - as good corporate citizens - is generally to stay ahead of the regulatory curve to become compliant in advance.
Whatever the legislative timetable, once the Conservatives make clear they accept the full rationale of Vickers (and by the way Labour, who have been a bit quiet on the whole issue, possibly remembering the famous Ed Balls speech where he said his whole mission was to enhance the competitiveness of UK banking) the markets will force the pace.
This, implicitly, is what Vickers is trying to do, to call the bluff of Barcap - does it move to America? Call the bluff of Standard Chartered and HSBC in their various threats to move offshore. Does he, in other words, manage to get the market to reshape itself voluntarily.
Of course there is more to say. Vickers only patches up one part of a failed system. A whole systems approach would look at hedge funds, consumer finance, the role of long-term wage stagnation.
But the politics is where it is at right now.