Independent Commission on Banking threatened mass resignation to make Osborne back-off

Matthew Oakeshott’s departure as a Liberal Democrat spokesman for criticising the ‘Project Merlin’ deal with the banks over bonuses and the like may have got the headlines, but the real story is revealed by Anthony Hilton in the Evening Standard – all the members of the Commission threatened to resign in protest at government interference with their work.

He writes:

The Government offered to emasculate the Independent Commission on Banking as it tried to strike a deal on bank bonuses a few weeks ago. I am told it backed off only when Sir John Vickers, chairman of the inquiry, and his entire committee, Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf threatened to resign…

It has now emerged … that the chief reason the banks took part [in Project Merlin] was to lift the threat that Vickers’s commission would recommend a major restructuring of the banking industry which would have the potential fundamentally to alter how they do business and where they make their money.

The views previously expressed by members of the Independent Commission on Banking have already given a pretty clear indication that it will recommend radical reform to the way banking is run in Britain – an outcome that Liberal Democrats inside and outside of government have been pushing for and without having a meeting of minds with George Osborne on the topic.

That the banks tried to head off any such recommendations – and failed – reinforces the likelihood that the Commission will make radical recommendations. That will be unpopular with some of the largest banks yet also (and in part as a result) be politically extremely difficult for the government not to act on, especially as top regulator Lord Turner is also continuing to speak out in public in favour of major changes.

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  • It doesn’t seem feasible to avoid another banking crisis without restructuring the system significantly. As the saying goes “if you keep on doing what you’ve always been doing, you’ll keep on gettting what you always got”.

    This country CANNOT socialise the losses of the banks again, probably not literally (as in cannot afford) and the public will not accept it again and in fact many (who don’t understand that the banks were bailed out not to save the bankers but to save the system and everyone’s savings, investments and pensions going belly up) don’t accept it now.

  • Andrew Duffield 1st Mar '11 - 8:03pm

    Let’s hope this submission gets the commission’s support:

    Anything less, and it will be business as usual for the banks.

  • I’m planning on going to the Oxford event with the Positive Money crowd on Friday, but no longer feel their proposal s sound. Money creation has to be taken out of the hands of the state altogether.

  • JustAnotherVoter 1st Mar '11 - 8:15pm

    Hopefully something like narrow banking will be the recommendation from the ICB.

    I fear that people will not want it. Depositors want “free” deposit insurance because they do not want to think about counterparty risk. The banks will tell us – and it will be true – that radical reform will be the end to free current account banking; it will mean debit card fees, ATM fees, etc etc. It will also probably mean lower cash savings returns.

    Radical reform means no free lunch. If the government will back down to the “tree lobby”, can you imagine the banking lobby quaking in their boots at the prospect of reform?

  • David Evans 1st Mar '11 - 9:11pm

    Absolutely right. This is in fact the biggest issue we face as a nation. In essence, do we allow the banks and their friends in the Conservative Party to hold the country to ransom again? It will take some very seriously clever law making and real backbone to do it, and if it doesn’t deliver absolutely what is needed, it should be an absolute coalition breaker. I for one don’t believe it will be done, but do our leadership have the nous, cunning and bottle to do what is needed.

  • @ David Evans “the banks and their friends in the Conservative Party”? Slip of the keyboard there, surely you meant ‘their friends in the Labour Party’? After all it was the Labour party who gave Sir Fred of RBS his knighthood for services to banking.

  • I have full internet banking with the Nationwide Building Society and have never paid any charges. They are profitable and offer attractive savings rates. If the clearing banks are unable to match this they deserve to fail.

  • “The public will not accept it again and in fact many (who don’t understand that the banks were bailed out not to save the bankers but to save the system and everyone’s savings, investments and pensions going belly up) don’t accept it now.

    There was no need to save the system in the particular way it was saved – in particular it was not necessary for the government to step in and back all the loses. Collapsing banks could have been nationalised temporarily (as was partially done), the bad loans could have been hived off into a bad bank, and the government could have allowed the losses to fall on the bondholders and shareholders.

  • Lets us hope the Commission recommends that Northern Rock is re-mutualised and regional financial institutions are developed -preferably mutually owned. The dominance of the ‘share ownership’ model needs to be challenged for everyday banking. The Casino banking can be allowed to fail………….

  • I see no Iceberg 2nd Mar '11 - 8:09pm

    kevinm’s post goes to the heart of the matter.

    All the bombastic tubthumping by the banks about leaving or raising charges for the public is simply more of the type of crude blackmailing scaremongering that they engaged in to get the taxpayer and government to bail them out in the first place.

    They love their investment arms because they make them colossal profits and bonuses.
    Porfits and bonuses they can make at almost zero risk since they will be bailed out if things go on as usual.

    Plenty of others can make commerical high street banking a success without fleecing the customer with extraneous charges. And plenty of others don’t need an investment arm to do so either.

    If the essential restructuring is fudged or dropkicked into the long grass then we all know what the inevitable result will be of that cowardice in the face of the banking lobby.

    Another Economic Catastrophe.

    It may take a few years but if the rules of the game remain the same then the bankers insatiable lust for gigantic bonuses using ever more complex derivatives make it a certainty.

  • JustAnotherVoter 3rd Mar '11 - 2:09pm

    “the government could have allowed the losses to fall on the bondholders and shareholders.”

    Shareholders did take huge, huge losses in both RBS and Lloyds; in B&B and Rock they were wiped out completely.

    The question of bondholders is more complicated: senior debt and depositors traditionally rank equally, so it may not be easy to force losses on all bondholders without forcing losses on depositors too, which would have been politically difficult. Regardless, bondholders in RBS and Lloyds have suffered loss of interest payments if not capital.

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