Unlike the Public Sector Pensions Commission which didn't bottle it when it came to attacking our pensions, the Banking Commission has bottled the chance of making significant reforms to the banking sector. http://www.guardian.co.uk/business/2011/apr/11/vickers-commission-blesses-banks
The Commission has been tasked with the wrong investigation. After the government spent £850 billion on bailing out the banks, the last thing we care about is "increasing competition" in the banking sector.
We are more interested in why, for instance, despite the advent of computer aided design and advances in construction technology, banking regulation enabled banks to lend so excessively that the average price of a house in Britain has risen from 3.6 times the yearly wage in 1960 to over 9.8 times (at the end of last year).
The following passage sums up the problem which the Comission has failed to address..."...even before the crisis banks enjoyed various kinds of state support, including the effective right to create money, and access to lender-of-last-resort facilities at the central bank. Comprehensive state support was given to banks in the crisis, for fear of what would otherwise happen, and continues to benefit banks directly and indirectly on a large scale, especially those seen as being systemically important." (p98, http://s3-eu-west-1.amazonaws.com/htcdn/Interim-Report-110411.pdf )
Would it not be better for the Commission to ask whether these money creation privileges should benefit bankers, or the taxpayers who provide them? Given the track record of the banks, are they really the right people to trust with the 'effective right to create money', as the Commission puts it?
In return for these privileges we are now £850 billion worse off, our public services are being slashed and privatised, houses cost nearly 3 times as much as they used to, and unemployment has risen by 1 million since the crash. In recognition of the failure of the report banking shares in Barclays were up 3.28%, for RBS 2.49%, and for Lloyds slightly less, at 0.72%.
We can expect this is due to the less-than-radical reform being suggested by the Banking Commission, which has advocated splitting up the investment and deposit-taking activities of banks, but not in the form of a full-scale breakup.
The proposals essentially suggest that retail (high-street, deposit-taking) banking activities should be 'ring-fenced' from the riskier investment banking activities. Tasked with presenting reforms to increase competitiveness and stability, the Commission has presented several options to promote financial stability and to increase the capacity of banks to absorb losses.
Increasing the capacity of the banks to absorb losses does not equate to taking the taxpayer off the hook, and a pseudo-break-up of separate banking activities will not in practice prevent them from failing all at once, will not remove the need for deposits to be insured by the government, and will not remove the "too big to fail" problem. Doesn't sound like a great return on investment does it?
Although lobbyists for the banks have tried to argue otherwise. We should all write to our MPs and demand that the right question is asked of the government - "does providing banks with the effective right to create money serve me better than taking it away from them?"
