Dick Newby writes… Banking – a Lib Dem win

As I write this, the top headline on the BBC online news reads Acclaim for Bank Shake-up Plan. The report states that there is broad support for the Vickers’ report’s proposals to separate domestic retail banking and global wholesale and investment banking operations. This support extends to the Chancellor and the Prime Minister.

What the BBC doesn’t point out is that this a complete victory for the Liberal Democrats – particularly Vince Cable. When the banking crisis broke , we quickly decided that we had to ensure that the state couldn’t be put in the position again where it had to bail out the totality of what the major banks did. We accepted that, in order to maintain confidence in the system, the Government would always have to stand behind individual bank account holders, but we could see no reason why we should all have to guarantee the more risky “casino” activities of the big banks.

We agued that a British version of the US Glass-Steagall Act should be introduced to restrict how banks could use depositors funds and to ringfence the Government’s liabilities in the case of a crisis.

At the time we were in a small minority. In the Lords, when I advocated splitting the banks on the lines which Vickers is now suggesting, the Labour front bench responded with withering scorn. Today, in response to a Parliamentary statement on Vickers, they have had the brass neck to say that the Government hasn’t acted with enough urgency to make this change!

Initially, with the exception of a few independent-minded Tory peers, the official Conservative position was, at best lukewarm. And as we’ve seen, as the banks have , in a display of brazen self-interest, sought to argue that the sky would fall in if these reforms were made, there has been considerable nervousness amongst some Conservative cabinet members about which way to jump.

They have now jumped – into the Lib Dem camp.

There has been a lot of sound and fury over recent days about the pace at which the reforms will be introduced. Even here we’ve seen considerable movement, with the Government suggesting today not only that there will be legislation to implement Vickers before the next election, but that some of it could be in the Financial Services Bill, which is currently undergoing pre-legislative scrutiny. Final implementation may run to 2019, to coincide with completion of the introduction of the new Basel capital rules, but the die has already been cast and the banks will now have no option but to start beginning to change their behaviour.

We have a tendency in the party to fail to shout about our achievements in Government and to quibble about what are essentially straightforward Lib Dem wins.

This is a straightforward Lib Dem win. We must make sure that the country realises it.

Dick Newby is Co-Chair Parliamentary Treasury Policy Committee

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12 Comments

  • Daniel Henry 12th Sep '11 - 11:34pm

    Not counting our chickens just yet. Get it into the Financial Services Bill and we have our win. Until then we can’t afford to be complacent.

    Cameron’s position is puzzling me. I’d always gotten the impression that he was happy to ride with bank bashing populist. That he’s willing to publicly admit to wanting to stall, ie going against strong popular opinion, is either a massive favour to Nick or he’s quite strongly against.

    We have a good chance though. I think that this is the big issue for Vince. I think he’s gritted his teeth over a lot of compromises in aid if reaching this goal. I get the impression that this is what he’s been reserving his “nuclear option” for.

  • Daniel Henry 12th Sep '11 - 11:49pm

    @ Geoffrey
    1) I think that the idea is to get legislation passed this parliament, but it gives the banks 5-6 years to make the necessary readjustments and reorganizations to comply.

    While it wouldn’t come into effect until a new parliament, a new government would need to pass an act to repeal it which would be HUGELY unpopular, even in the rightwing press.

    So long as get the legislation passed within the next year or so I’m happy.

    2) You’re right that it’s. not the full separation that we asked for. Perhaps the banking commission had their reasons for rejecting that idea?

    So long as it prevents retail holdings from being endangered by investment risks then it’s what we needed, right?

  • Simon McGrath 13th Sep '11 - 6:27am

    Pity there is no evidence that ‘casino banking’ caused the crisis. Still as you say it is soemthing vince has been calling for.

    And of course the more capital banks need to hold the less lending they can do.

  • Simon – What do you mean – “No evidence”?? There is every evidence that the rolling up of debt in complex instruments misled many people in many places that they were able to hold much more debt than would previously have been the case.

    I think Dick Newby is right about a “Lib Dem win” if you merely look at the recent positions of parties and people. But I am afraid it is far less straightforward if you look at the starting positions. I would have thought if you look at Vince’s original “separate the casino and high street banks totally” position and the timescale that has been agreed for a much more limited firewall separation, and when you look at the wider context of the continuation of massive bonuses, particular to senior casino bankers, the banking lobby has managed to hold on to much more for longer than might have been expected. When you consider popular opinion, and media views – very “anti-bankers”, along with the (apparently) adjusted position of Labour, I think this is at best a draw between us and the Tories (with around 50% of their MPs with a financial background of some sort) fighting a populist tide. Sorry, but I would say the Tories have clearly “done well” for “their side”.

    There are however, still things to fight for, eg inclusion in the FS Act, trying to speed the timetable up etc.

  • 2019.

    All talk and no action yet again.

    Vince Cable must be getting used to being humiliated like this.

  • Bill le Breton 13th Sep '11 - 10:02am

    We should indeed be grateful to Vince and we should not forget the roles played by Matthew Oakshott and Dick, himself.
    The small depositor/saver and the small business should not have to suffer because of the recklessness of self-deluded bankers/chief executives (such as Applegarth and Goodwin) and the incompetence of regulators.
    But this Lib Dem triumvirate is also proving what a considerable influence for good and for liberal democracy a ministerial team can be provided that they a) are on the liberal and not neo-liberal side of an issue and b) that they have the courage to use their weight.

  • Malcolm Todd 13th Sep '11 - 2:36pm

    I don’t see how this can be painted as a “straightforward Lib Dem win”, when Cable argued from the outset for banks to be broken up – he’s been forced to accept a “Chinese wall” arrangement that may or may not be any use in achieving an objective that may or may not be desirable in itself. (I really have no opinion on the latter question.) However, it’s probably still more than the Tories want to do, and that’s worth saying.

  • richard in norway 13th Sep '11 - 3:05pm

    I don’t trust this. Why won’t th legislation be enacted now in an emergency session if necessary. The plan is to pass the new law in 2015; call me stupid but it ain’t going to happen and we will go into the election with egg all over our face. Vince should press the button if this is not fasttracked. We have nothing to lose and the public want and expect much more than these proposals. We have an advantage here and we should press it

  • richard in norway 13th Sep '11 - 3:08pm

    Simon

    The banks did not trust the rating agency’s, they bribed them

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