Erikka Askeland: Sound and fury must not mask need for banks we can rely on

TREASURY spinners had it as "the most far-reaching proposal for banking in a generation", a statement full of sound and fury but rousing only the same old arguments about the pros and cons of regulation.

Chancellor George Osborne's backing of Sir John Vickers' best-laid - if only interim - plans to subsidiarise retail and wholesale banks at least puts an end to the dithering and special pleading. Now Vickers' Independent Commission on Banking (ICB) can use the summer months before the final report comes out in September to hammer down the detail.

Not that Osborne's pre-emptive phrase, spoken to the press corps late on Tuesday night, was welcomed by all. It promoted economist Douglas McWilliams, of the think-tank CEBR, to recall that back in the day when his father was Lord Mayor, chancellors had better manners than to pre-announce the contents of his annual speech to the City. But the modern manner of briefing, seeing the headlines, then changing policy if the response is too shrill seems to be a method the coalition has mastered.

And like the recent explosive House of Commons committee which saw the heads of Barclays, Royal Bank of Scotland, HSBC and Lloyds Banking Group grilled again by MPs, there seem to be as many opinions about ring-fencing as there are bankers.

HSBC chairman Douglas Flint said Vickers' polite separation was "required" to protect depositors, while Stephen Hester of RBS warned ominously that ring-fencing the retail parts - with its inherent promise of bail-outs - would just lead eventually to moral hazard and risky lending, bringing us right back to where we started.

Hester is on to something here - his being the closest admission by a senior banker yet that rules will be "gamed" because that's what banks do. Regulators and bankers are like something out of Aesop's Fables - the farmer who took pity on the frozen snake only to be bitten when it revives - is just one that comes to mind.

Be prepared for the arguments to begin, such as whether ringfencing will make banking more expensive, and less competitive. It will.

The process will swallow time and effort in a vast reorganisation process and ring-fencing will not tackle the problem because Northern Rock and Bradford & Bingley failed even though they weren't casino banks.

This one is tricky, because once the Glass-Steagall separation of retail deposits from speculative banking was erased, the whole western banking system was able to manufacture debt to levels never before seen on its scale. It was this system that the board of Northern Rock was able to game so well until it went so badly.

So some will argue that the retail/wholesale horse has bolted. But, frankly, what we need is to feel less pity for the reviving snake and make it safe so it doesn't bite us again.

Osborne's, or rather Vickers', answer is ring- fencing. It is a sop to the bankers - like Barclays and RBS for whom the prospect of being sliced in half is too unbearable to even think about. But it is also a tough measure, deserving of some of the furious language employed by the spin doctors and speech writers.

If the new regulation is done well, we will be able to rely on cautious, prudent and resilient banks again - one day. Drop in unemployment is good news but dark days still to come

WHEN is good news like bad news? It is when numbers such as the recent labour market data, emerge from the bubbles of the economists' cauldron which are hard to explain.

So ILO unemployment - the number of people without jobs but actively looking for work - in the three months to April cheered us up by appearing way down by 88,000.

Likewise, while everyone has been wringing their hands and gnashing their teeth about how grim the economic conditions are, the number of private sector jobs grew strongly in the three months to April.

Yet more recent data, such as the number of dole claims, floored everyone by spiking to 19,600 in May. Add to that the assumption that public sector jobs cuts and changes to the benefits system is just a juggernaut that has only begun rolling, and the dark artists glumly expect the good figures in the first quarter to be some sort of a blip.

But the Work Foundation, which reckons the fall in ILO numbers reflects a rush of the young unemployed into higher and further education, says the figures are "encouraging". Even the CBI, which helpfully pointed out that there is still a problem with long-term unemployment, said it was "good news".

But the unpleasant thought, pervasive like a bad smell, is that if we think it has been tough so far, wait: there's more to come.