Helen Martin: Cost of bank reform is price worth paying

IT seems as if 2011 is drawing to a close with a promise, or at least a declaration, that the banking system will finally be overhauled. Hallelujah! Many of us couldn’t be more delighted.

According to Chancellor George Osborne, responding to the Sir John Vickers banking enquiry, by September 2013 the retail business of banks, which deals with ordinary customers and small or medium business accounts, is to be ring-fenced – protected from the gambling operation that is international and speculative investment. That can only be a good thing.

Mortgages will be harder to get too: no 100 per cent mortgages or crazy self-certification, both of which meant lending too much money to too many people who couldn’t afford the repayments.

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And there will be more competition, making it faster and easier to change banks without charge.

In essence, this is all “back to basics” stuff, returning at least part of the banking industry to the way it was in the old days when banks had scruples and were obliged to actually look after their customers.

Right in the firing line is RBS, which is 80 per cent owned by the Government on behalf of the public. So far, it’s shown a pretty poor return having lost £27 billion in value since 2009 when we bailed it out.

And that remains the chink in the armour. Because that bail-out was given more or less unconditionally. Having taken the loot, RBS and other banks simply carried on as they had always done, reducing services, charging more, paying customers less and, of course, handing out millions in bonuses to their own staff. In fact their wage bills have actually gone up by £12bn in the last four years.

What many of us now fear is that despite any changes imposed on the industry, it will continue by economic sleight of hand, to look after itself and pass the costs of all of this restructuring – up to £8bn a year – back to the customer.

Banks have always tried to defend their indefensible behaviour by threatening that too much restriction on practices and bonuses will drive talent away, or by citing the disastrous effects of massive job losses which would be particularly felt in cities such as Edinburgh and London, hugely dependent on financial sector employment.

It takes courage to call their bluff. Most of us don’t understand the intricacies of banking (any more than it would appear our incompetent bankers do).

Sir John Vickers said: “The costs and dangers of unreformed banks are plain for all to see.” True enough. The costs of reforming an industry that has been allowed to get away with unrestrained greed, self-protection and daylight robbery for decades, aren’t so clear.

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More legislation is on its way to deal with the detail and practicalities of reform. We can only hope it includes stringent controls such as paying people a “reasonable” salary for doing a job and stamping out ludicrous bonuses; ensuring that the banks and not the customers, take their deserved ensuing losses and costs on the chin; and limiting their more dubious activities and products in favour of those which work in customers’ interest.

In effect it could mean dismantling great swathes of the industry altogether. It could mean our 80 per cent investment in RBS being worth even less or possibly disappearing completely. It could mean banking job losses on a grand scale and banks and bankers being forced to work on a fraction of the incomes they are currently used to.

But so culpable and loathed is the industry that, for most of us, and most importantly for our children’s futures, whatever it costs, it is a price worth paying.

A pain in the..

SEEMED like a good idea at the time; a week in the sun just before Christmas.

Unfortunately Lanzarote remained overcast for the duration. The recycled air in the plane resulted in spectacular infection and sinusitis.

On antibiotics, coughing and spluttering, I then managed to (wait for it . . .) pull a muscle in my right buttock which, in a nutshell, means sitting, standing or lying down is agony; driving is impossible; shopping is out of the question; and at the time of writing, with six expected for Christmas dinner, I can barely pull a cracker let alone pull off a festive feast.

I’ll let you know how it panned out next week. Meanwhile the closest I am to a merry Christmas is feeling like a right turkey. Happy holidays!