For years they operated in a shadowy world of dark machinations and corporate hegemony. Untouchable, beyond the grasp of regulators, auditors and tax inspectors, they inhabited a parallel universe, with only tenuous connections to other parts of the banking system and the rest of the world. But eventually the investment bankers dabbling in the complex and opaque derivatives markets collided drunkenly with the real world and the game was up.
Or so it seemed. Three years on, the culprits lurk in dark corners, biding their time, waiting for the right conditions to indulge their yearnings once again, undeterred by the censure of society. Governments have been procrastinating and financial liberation continues largely unchecked. When the recommendations of the Independent Commission on Banking (ICB) were published yesterday, the chorus of dissent must have been music to the ears of investment bankers.
The ICB was set up by George Osborne last June to investigate the banking sector and make recommendations on improving competition, making the banks safer and preventing a repeat of the 2008 crash. The main proposal – for banks to ringfence their retail operations – seems a sensible approach, protecting consumers’ money from the risk-taking associated with the banks’ investment divisions.
But much of the reaction to the proposed reforms has been negative. Many commentators have expressed alarm over the potential damage to one of the most profitable sectors of the nation’s economy. They argue that it could make banking groups such as Barclays and the Royal Bank of Scotland significantly less attractive to investors. “The danger is that for international investors who can select which banks to invest in globally, the ringfenced part will be seen as too dull to attract capital, and the non-ringfenced part may be seen as too risky relative to others,” said Robert Talbut, chief investment officer at Royal London Asset Management.
It’s bad enough that banks will get until 2019 to ringfence high street operations. Having seen the dire consequences of dangerously loose regulations, why do we persist in believing the banks when they say they can only be profitable if they’re permitted to gamble with their depositors’ cash?
I accept the premise that banking is all about confidence, but I’d have thought the best way to win the confidence of investors is not to lead them to a casino but to create safe havens for their money.
The UK banking sector will become not less but more powerful when it eventually comes over from the dark side.