Independent Commission on Banking Report - too late! The horse has already bolted.
The final report of the Independent Commision on Banking (the Vickers report) is a curious intellectual object and no more. It is an academic exercise that imagines a world which does not exist and has not existed for some time now. The zombie banks have got away with it yet again. Do not believe the banks' hype.
The report is resolutely fixed in its deliberations on another planet.
The urgency which was required, and with it the need for immediate action, is effectively replaced by a languid and dreamy set of philosophical reflections from planet nowhere.
In the Vickers world there has been a happy resolution to European Sovereign Debt, no Euro crisis, no contagion-laden inter-bank bond investment.
In Vickersworld the economies of Greece, Ireland, Portugal, Spain and Italy have met a happy conclusion in fiscal rectitude and monetary fluidity. The US economy has blossomed, as has the UK's.
In Vickersworld a full worldwide recovery has taken place and with it all of the assets on the banks' books have finally come good. No massive, teetering, contagious new markets in Credit Default Swaps, no lurching piles of old and new dodgy loans and investments exist in Vickersworld. Insurance companies are solid and reliable rocks across the world economy.
Someone needs to tell Vickers that the horse has already long ago bolted; and the Independent Commission on Banking Final report is a simply a DIY manual carefully written and designed to teach us exactly how to first construct, and then close, the stable door.
The reality which the rest of us live in is on red alert for another banking collapse within months where no ringfences exist, where businesses' and individual customers' money will again be at severe risk and where requirements as to capital will be irrelevant.
In this world the banks will be back with the begging bowls, the taxpayer will be on the hook again and credit will freeze up across the economy. Defaults across the financial world created by a return to recession, in turn caused by the rapid contraction of economies by ideologically driven governments missing the point, will flick the first domino in the breakdown of banks asset sheets into irrecoverable pieces this time.
In the world we all actually live in banks do not lend anyway and have not lent for years. They have sat on capital cushions provided by the state and through quantitative easing and other liquidity schemes. Increasing those requirements for capital will simply make them worse. Some of them will leave the country essentially with taxpayers' money trickling from their trailing pockets.
In this world the public sector has been made the scapegoat for the sins of a private sector led by banking, insurance, big retail, property businesses and global finance in a gigantic diversion technique designed to take the eyes of the world off the fact that the action should have been taken against global capital, not the public sector.
We probably all now realise and should have accepted that the banks should have been allowed to fail 3 years ago and the bills should have been paid then. They should have been replaced by retail banking to SMEs and ordinary customers provided by brand new and smaller regional banks.
The £75billion the government put into the failed banks and the £880billion of indemnities and guarantees should instead have been put into fresh banks designed specifically to stimulate sustainable economic growth across the regions without recourse to the remnants of a global capital system and a global business network which had collapsed in ignominious failure.
The extended recession and consequently massive deficits around the world were caused by banks, bankers and big global businesses and politicians in thrall to them.
The thrall appears though Vickers to be alive and well.
All of Vickers's no doubt highly laudable principles could easily have been required and put in place as appropriately punitive measures 2 years ago (indeed Vince Cable himself suggested so). Punitive being the point.
They could be required tomorrow. A quick statutory instrument could be signed into effect immediately.
That we may not get legislation through the house until 2014 and not have these requirements in place until spring 2019 says it all. The banks have won. They won't like 2019, but they've got lots of time to prepare for it and will secretly be absolutely delighted with the timescale. The secret lobbying has won. They too live in the same nether planetary worlds as Vickers.
As to Vince Cable, he has let the banks get away with it and has been left swinging in the wind as a politician and as an economic thinker. He, too, has flown to another planet.
As to the detail, the Commission essentially recommends that retail banking (i.e. individuals and small and medium sized businesses in the EU) has to be carried out in new subsidiary companies. Those subsidiary companies will be subject to 'regulation' to ensure that they do not break the rules about what goes on inside the 'ringfence'. £1-2 trillion would come inside the Ringfence.
It also recommends that Banks should have a capital base of 10% risk-weighted capital.
The retail deposits which are subject to the government's guarantee will be paid out first before any other creditors in any wind-up of a bank. (By the way, this should have immediate effect, no need to wait for this; pass that into law tomorrow with a difference - it should also outrank secured debt; we want our money back on any collapse, no questions asked.)
It all looks very severe to the banks, but four things occur immediately to me.
Firstly, regulation of the new ring-fenced subsidiaries will determine whether this whole structure works. It was the failure of regulation which caused the problem the last time round. There will be regulatory requirements for capital, liquidity, funding and large exposures on a standalone basis.
The structures don't matter - what matters is whether the regulator can stop the subsidiaries doing the bad stuff. UKFI was meant to regulate the banks at arms' length for the last 3 years and had zero effect on the banks, bonuses and (most importantly) lending to businesses.
Who actually is the regulator and wields the powers will be crucial. Regulation of banking does not have a good record, whether it's the Bank of England or the FSA. So the proposals will only be as good as the regulators.
The report's author, Sir John Vickers, was himself a regulator, and a terrible one at that. He was the head of the Office of Fair Trading from (2000-2005) and so involved in the total failure to bring the UK banks to heel over the fleeceing of bank customers through astronomical bank charges.
Secondly, the capital requirements are, too, from another world.
When RBS/NatWest and Lloyds/HBOS were saved by the taxpayer by an injection of £75Billion in shares, and the guarantees and indemnities of 100s of £billions of assets (totalling £955billion - £7billion of which we borrowed!), their capital bases were, and still are, provided by the state. Until the state gets out (i.e. sells its shares and removes the guarantees - probably at a loss now anyway) the capital requirements of this report are irrelevant.
The UK state is the capital base! So who cares in the meantime what the capital base requirement is? It is a fiction.
Thirdly, and consequently, it is Barclays and HSBC who (if they wish to) will have to respond to the report by creating the new subsidiaries, and ringfencing, and having bigger capital bases by the beginning of 2019. I suspect they'll quit the UK by then and good riddance to them. Barclays has by far the biggest exposure to European sovereign and other bank debt - I'd rather they weren't over here anyway as they'll be coming to us for further help if the crash occurs. Let some other host government bail them out. I suspect the Chinese would bailout HSBC in the event of their collapse anyway.
They'll all carry on regardless in the meantime.
Fourthly - the recognition of SMEs and Individuals' deposits as worthy of protection within the ringfence is all very laudable, but this was a sine qua non for the report. But without clear regulation to ensure that the subsidiary banks actually lend to them, too, who cares?
Our economy has been captured by the banking system and been financialised into thrall. We must start from a premise that the banks are the servants of the economy not its raison d'etre.
If there is a Greek default and a collapse of the Euro by the end of this year and a return to effective world and UK recession or stagnation, then this report will in retrospect be seen as a practical joke. Another banking collapse across Europe could well be with us shortly. Future requirements for subsidiaries and capital cushions and ringfencing will have been irrelevant.
It's pointless asking whether Vickers will work - it is a roadmap to a place which sank beneath the waves some time ago.
The Vickers report is dressed up to look like a Rottweiler, but is no more than a toothless poodle.