Comment: Banks should be ring–fenced and not split up

Martin Flanagan
Martin Flanagan
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BATTLE lines are being drawn ahead of this week’s report from the Parliamentary Commission on Banking Standards, amid rising speculation that more-radical restructuring proposals will be recommended.

The ring-fencing of bank retail operations from riskier investment banking, the cornerstone of the Vickers report, is said to be deemed by the commission to not go far enough.

The commission, chaired by Andrew Tyrie, is now believed to be considering calling for legislation that would allow the banks to be broken up, rather than just divided by capital and managerial fire walls.

Such a decision would shock the likes of Barclays, HSBC and Royal Bank of Scotland in particular; but Lloyds boss Antonio Horta Osorio has also said that – although he believes there needs to be structural change in banking – he supports the more-limited option of ring-fencing than break-up.

I am not alone in having sympathy with this view. It has also been argued by the likes of Chancellor George Osborne, chairman of ITV and a former MP Archie Norman and David Cumming, head of UK Equities at Standard Life Investments.

There is a sense of a bandwagon, here, or what Norman refers to as “political indulgence”. Vickers explicitly considered full separation of retail and investment banking operations, but decided that any gains would be minimal for the substantial extra costs involved.

Cummings says there is a danger now of an “an aggressively anti-bank strategy, which to some extent is politically driven, to appeal to an anti-bank public mood”.

This is despite banks’ capital ratios and bad debts being radically improved and many miscreants having fallen on their swords.

But, if the rumours are correct, then the mood of the parliamentary banking commission – which also includes former Chancellor Lord Lawson – has hardened amid the recent banking scandals, particularly Libor and the mis-selling of derivatives to small businesses.

But scandals can happen within the ring-fence; witness the payment protection insurance scam. And globalisation is irreversible.

Given that, do we really want a UK banking sector that is run purely as a utility?

And do we want to tie down our banks so much that economic growth is irrevocably affected. On balance, I don’t think so.

Ring-fencing retail from casino banking seemed a sensible compromise. It still is.

Upgrading the networks is key for renewables

THE regulator has gone some way towards the energy industry’s spending requests on gas and electricity networks over the next eight years. The industry, led by National Grid, originally asked for infrastructure spending of £29.4 billion, when Ofgem was proposing a lower £22.7bn.

While not completely caving in, Ofgem has now agreed a near-7 per cent increase in its original proposal to £24.2bn. In terms of negotiations with regulators that is no bad result for the industry.

While it is bad news for the public that this investment in major grid improvement projects will be recouped through higher bills on the doormat, the investment clearly makes sense in giving greater energy efficiency and security to the UK.

That spend is also important given the UK’s demanding renewable energy target.