Over at The Independent, Lib Dem shadow chancellor Vince Cable’s speech to the London Stock Exchange is excerpted:
I stand here to outline the Liberal Democrat proposals for significant changes to the regulatory structure of the City and its future direction. These proposals build on ideas we set out over a year ago in our New Deal for the City. Some of those ideas – macroprudential regulation of bank capital; linking bonuses to long-term stock performance; reform of rating agencies – have become part of the conventional wisdom and I don’t need to rehearse them.
You can read more excerpts from Vince’s speech HERE at Lib Dem Voice.
PS: want to see Vince enjoy 40 winks before a Sky News interview? Then click here.
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One Comment
I was a bit suprised by some of the proposals from Vince – some clearly wouldn’t work. Forcing only UK banks to reveal employees salaries is extraordinary. The best people would clearly go to non-UK banks. They wouldn’t even have to move country.
I also think splitting investment and retail banking wouldn’t have any beneficial effect. The retail banks would just buy the bonds of/ lend money to investment banks and when they go pop the consequences would be the same. Hard to see how you would stop this from happening.
Here’s a completely radical idea.
The reason that banks have taken massive risks and come a cropper is that they have every incentive to do so. No rational person would behave otherwise.
If you are a trader and you make a lot of money you get to keep some of it, if you lose someone else pays it all. This is called the “trader’s option”. So the incentive is to put on positions that make money most years and in a bad year you get sacked and get a job elsewhere.
Likewise shareholders have no incentive to stop this behaviour. If their institution takes huge risk and makes a big profit happy days. If it all goes pear shaped then the worst that can happen is the shares become worthless. (This is the “limited liability put”.)
So why not end limited liability for institutions like some banks and perhaps utilities which everyone knows cannot be allowed to fail. Maybe make the shareholders liable for 10% of the cleanup costs when such a company becomes insolvent.