Vickers on banking

[Ozzie Osmond]

• Banks failed to manage risk - need to curb excessive risk-taking incentives..
• Banks had behaved in a way which amplified the effects of the crisis - avoid repetition.

Investigating possible measures to promote stability and competition in UK banking. Likely to include structural reforms to enhance banks' capital structures. Possible separation of activities or perhaps subsidiarity.

• Retail banking - largely domestic, not global competition - regulate accordingly.
• Investment banking - international - ensure competitiveness.

Taxpayer should not have had to jump to the front of the queue and pick up commercial risks which should have fallen first on shareholders, then junior debt, then senior debt.

• Interim report April 2011, to be followed by detailed consultation.
• Final recommendations Sept 2011.

[Fittster]

Why the political class won't change anything in the banking sector:

"“London, 21 January 2011 – Lazard Ltd (NYSE: LAZ) announced today that Lord Mandelson, former Secretary of State for Business, Enterprise and Regulation, effective immediately. As a Senior Adviser, he will provide independent strategic counsel to the firm and its clients.”

Clients like Kraft, who took over Cadbury, on Mandy’s watch."

Banks give very lucrative jobs to politicians when they leave office.

John Major: "£500,000 a year as European chairman of the Carlyle Group, a US investment group of which George Bush senior is another director. He receives £100,000 as chairman of the European advisory board of the US-based Emerson Electric Co, £50,000 as an adviser to bankers Credit Suisse First Boston and £105,000 as a director of the Mayflower Corporation automotive and engineering group."

Tony Blair "Tony Blair has taken a part-time post with US investment bank JP Morgan.
Mr Blair, who stood down as UK prime minister in June last year, has been employed "in a senior advisory capacity", the bank said.

He said he looked forward to advising the bank on the "political and economic changes that globalisation brings".

It is not known how much JP Morgan will pay him, but some estimates say more than $1m (£500,000) a year. The bank said he had a "unique perspective"."

[Eric Mc]

When I saw the words "Vickers" and "Banking" immediately thought of this -

Edited by Eric Mc on Saturday 22 January 14:58

[don4l]

Ozzie Osmond said:

* Banks failed to manage risk - need to curb excessive risk-taking incentives..

• Banks had behaved in a way which amplified the effects of the crisis - avoid repetition.

Investigating possible measures to promote stability and competition in UK banking. Likely to include structural reforms to enhance banks' capital structures. Possible separation of activities or perhaps subsidiarity.

• Retail banking - largely domestic, not global competition - regulate accordingly.
• Investment banking - international - ensure competitiveness.

Taxpayer should not have had to jump to the front of the queue and pick up commercial risks which should have fallen first on shareholders, then junior debt, then senior debt.

• Interim report April 2011, to be followed by detailed consultation.
• Final recommendations Sept 2011.

I was very puzzled when I heard these comments.

If you had purchased £10,000.00 of RBS shares in February 2007, they would now be worth £655.00. That would represent a 93.5% loss.

If you had purchased £10,000.00 of LLoyds shares at the same time, they would be worth £1,135.00 today. You would have lost more than 88% of your investment. You would have lost 100% if you had purchased shares in Northern Rock or Bradford and Bingley.


The shareholders have taken the brunt of the pain. The government should end up selling at a profit.

I cannot see how anyone could think that the shareholders were, in some way, protected by the taxpayer. The shareholders were royally screwed.

I can see how politicians would like to divert attention away from their own mistakes. After all, "affordable" housing, so beloved by the Labour party, had nothing to do with the sorry mess. [/sarcasm]


Don
--

[Fittster]

don4l said:

If you had purchased £10,000.00 of RBS shares in February 2007, they would now be worth £655.00. That would represent a 93.5% loss.

And what of the bond holders?

[don4l]

Fittster said:

don4l said:

If you had purchased £10,000.00 of RBS shares in February 2007, they would now be worth £655.00. That would represent a 93.5% loss.

And what of the bond holders?

I don't know how much they had raised in bonds, so I cannot comment. Also, a lot of the bondholders would have been UK pension funds, so if they had defaulted, then the taxpayer would have been left with a large bill anyway.

By taking a stake in the banks, the shareholders got a kicking, and the taxpayer stands to make a tidy profit.

The shareholders did bear the brunt of the pain. Why would anyone think otherwise, unless they have a political agenda?


Don
--

[crankedup]

don4l said:

Ozzie Osmond said:

* Banks failed to manage risk - need to curb excessive risk-taking incentives..

• Banks had behaved in a way which amplified the effects of the crisis - avoid repetition.

Investigating possible measures to promote stability and competition in UK banking. Likely to include structural reforms to enhance banks' capital structures. Possible separation of activities or perhaps subsidiarity.

• Retail banking - largely domestic, not global competition - regulate accordingly.
• Investment banking - international - ensure competitiveness.

Taxpayer should not have had to jump to the front of the queue and pick up commercial risks which should have fallen first on shareholders, then junior debt, then senior debt.

• Interim report April 2011, to be followed by detailed consultation.
• Final recommendations Sept 2011.

I was very puzzled when I heard these comments.

If you had purchased £10,000.00 of RBS shares in February 2007, they would now be worth £655.00. That would represent a 93.5% loss.

If you had purchased £10,000.00 of LLoyds shares at the same time, they would be worth £1,135.00 today. You would have lost more than 88% of your investment. You would have lost 100% if you had purchased shares in Northern Rock or Bradford and Bingley.


The shareholders have taken the brunt of the pain. The government should end up selling at a profit.

I cannot see how anyone could think that the shareholders were, in some way, protected by the taxpayer. The shareholders were royally screwed.

I can see how politicians would like to divert attention away from their own mistakes. After all, "affordable" housing, so beloved by the Labour party, had nothing to do with the sorry mess. [/sarcasm]


Don
--

Shareholders (should) know the risks associated with stock holdings, its only a loss if you sell your holdings at the wrong time. Tax payer had no options but to buy shares.

[Fittster]

don4l said:

Fittster said:

don4l said:

If you had purchased £10,000.00 of RBS shares in February 2007, they would now be worth £655.00. That would represent a 93.5% loss.

And what of the bond holders?

I don't know how much they had raised in bonds, so I cannot comment. Also, a lot of the bondholders would have been UK pension funds, so if they had defaulted, then the taxpayer would have been left with a large bill anyway.

By taking a stake in the banks, the shareholders got a kicking, and the taxpayer stands to make a tidy profit.

The shareholders did bear the brunt of the pain. Why would anyone think otherwise, unless they have a political agenda?

Since when is it the job of the taxpayer to insure the investments of pension funds? Should the treasury by buying shares in HMV?

Capitalism should have resulted in both share and bond holders being wiped out. It's not the job of the taxpayer to support private pension funds.

[crankedup]

Ozzie Osmond said:

* Banks failed to manage risk - need to curb excessive risk-taking incentives..

• Banks had behaved in a way which amplified the effects of the crisis - avoid repetition.

Investigating possible measures to promote stability and competition in UK banking. Likely to include structural reforms to enhance banks' capital structures. Possible separation of activities or perhaps subsidiarity.

• Retail banking - largely domestic, not global competition - regulate accordingly.
• Investment banking - international - ensure competitiveness.

Taxpayer should not have had to jump to the front of the queue and pick up commercial risks which should have fallen first on shareholders, then junior debt, then senior debt.

• Interim report April 2011, to be followed by detailed consultation.
• Final recommendations Sept 2011.

Its only a matter of short time before structural changes are made, its seems more voices are adding to the chorus every week.

[don4l]

Fittster said:

don4l said:

Fittster said:

don4l said:

If you had purchased £10,000.00 of RBS shares in February 2007, they would now be worth £655.00. That would represent a 93.5% loss.

And what of the bond holders?

I don't know how much they had raised in bonds, so I cannot comment. Also, a lot of the bondholders would have been UK pension funds, so if they had defaulted, then the taxpayer would have been left with a large bill anyway.

By taking a stake in the banks, the shareholders got a kicking, and the taxpayer stands to make a tidy profit.

The shareholders did bear the brunt of the pain. Why would anyone think otherwise, unless they have a political agenda?

Since when is it the job of the taxpayer to insure the investments of pension funds? Should the treasury by buying shares in HMV?

Capitalism should have resulted in both share and bond holders being wiped out. It's not the job of the taxpayer to support private pension funds.

You're correct. It isn't the job of the taxpayer to support private pension funds. However, we expect the government to act responsibly. If more banks had failed, then the economy would be in a much worse state.

We have a welfare state. If pension funds failed, then the government would have to pick up some of the tab.


Shareholders are the people who take the risks. In the case of the banks, they got punished for their lack of oversight. I don't understand why you want to see the bondholders punished. What would you have to gain from this?


Don
--

[Fittster]

don4l said:

Shareholders are the people who take the risks. In the case of the banks, they got punished for their lack of oversight. I don't understand why you want to see the bondholders punished. What would you have to gain from this?

I wish to see a system where the banking sector and government are not connected.

In the event that a bank gets its sums wrong it goes bust, if it gets its sums right it can pay whatever it likes to its staff without the government complaining and imposing windfall taxes.

[Eric Mc]

Fittster said:

don4l said:

Shareholders are the people who take the risks. In the case of the banks, they got punished for their lack of oversight. I don't understand why you want to see the bondholders punished. What would you have to gain from this?

I wish to see a system where the banking sector and government are not connected.

In the event that a bank gets its sums wrong it goes bust, if it gets its sums right it can pay whatever it likes to its staff without the government complaining and imposing windfall taxes.

The trouble is that banking involves nearly EVERYONE in society - not just those who are financially trained or educated is assessing investment risk. We all NEED banks - just to handle our everyday financial chores. We cannot manage without them.
Banks provide a SERVICE to society way beyond the hard nosed commercial imperative of taking financial risks and maximising profits for their shareholders.

By all means allow banks to operate totally unfettered of any regulation or government interference whatsoever. However, if that is the regime under which they are to operate, alternatives to pure banking must be made available to those citizens who are averse to risk, are not interested in maximising financial reward and just want a banking service so that they can function in modern society.

When people open a deposit or current account in a bank, they are not approaching that "investment" in the same way they might if deciding to buy shares in a PLC or to buy a rental property.

Edited by Eric Mc on Saturday 22 January 16:19

[Randy Winkman]

Fittster said:

I wish to see a system where the banking sector and government are not connected.

Isn't the Government connected to every business? Through planning laws, rules on monopolies, technical/safety standards for all sorts of items, standard measures for pints/litres etc, training of professional drivers and pilots, labelling of food and drink, rules about guarantees etc etc etc. I don't think all of it is necessary, but I do think that rules of some sort are necessary to enable Jow Public to have somewhere safe to keep his money.

[Fittster]

Eric Mc said:

Fittster said:

don4l said:

Shareholders are the people who take the risks. In the case of the banks, they got punished for their lack of oversight. I don't understand why you want to see the bondholders punished. What would you have to gain from this?

I wish to see a system where the banking sector and government are not connected.

In the event that a bank gets its sums wrong it goes bust, if it gets its sums right it can pay whatever it likes to its staff without the government complaining and imposing windfall taxes.

The trouble is that banking involves nearly EVERYONE in society - not just those who are financially trained or educated is assessing investment risk. We all NEED banks - just to handle our everyday financial chores. We cannot manage without them.
Banks provide a SERVICE to society way beyond the hard nosed commercial imperative of taking financial risks and maximising profits for their shareholders.

By all means allow banks to operate totally unfettered of any regulation or government interference whatsoever. However, if that is the regime under which they are to operate, alternatives to pure banking must be made available to those citizens who are averse to risk, are not interested in maximising financial reward and just want a banking service so that they can function in modern society.

Simple solution to that. Set-up a statement bank, using the post office as branches, basically bring back Giro bank.

http://en.wikipedia.org/wiki/Girobank

http://www.guardian.co.uk/business/2010/nov/09/pos...

Edited by Fittster on Saturday 22 January 17:20

[Eric Mc]

Fittster said:

Eric Mc said:

Fittster said:

don4l said:

Shareholders are the people who take the risks. In the case of the banks, they got punished for their lack of oversight. I don't understand why you want to see the bondholders punished. What would you have to gain from this?

I wish to see a system where the banking sector and government are not connected.

In the event that a bank gets its sums wrong it goes bust, if it gets its sums right it can pay whatever it likes to its staff without the government complaining and imposing windfall taxes.

The trouble is that banking involves nearly EVERYONE in society - not just those who are financially trained or educated is assessing investment risk. We all NEED banks - just to handle our everyday financial chores. We cannot manage without them.
Banks provide a SERVICE to society way beyond the hard nosed commercial imperative of taking financial risks and maximising profits for their shareholders.

By all means allow banks to operate totally unfettered of any regulation or government interference whatsoever. However, if that is the regime under which they are to operate, alternatives to pure banking must be made available to those citizens who are averse to risk, are not interested in maximising financial reward and just want a banking service so that they can function in modern society.

Simple solution to that. Set-up a statement bank, using the post office as branches, basically bring back Giro bank.

http://en.wikipedia.org/wiki/Girobank

http://www.guardian.co.uk/business/2010/nov/09/pos...

Edited by Fittster on Saturday 22 January 17:20

So the state provides "no risk" banking?

What if the Post Office gets privatised?

[Fittster]

Eric Mc said:

So the state provides "no risk" banking?

What if the Post Office gets privatised?

It's not 1980, you don't have to privatise everything any more

The state could provide a simple banking system, as it has previously done. If you want additional returns or more services go to the private sector but if it goes wrong don't coming running back to the taxpayer.

[Eric Mc]

Fittster said:

Eric Mc said:

So the state provides "no risk" banking?

What if the Post Office gets privatised?

It's not 1980, you don't have to privatise everything any more

The state could provide a simple banking system, as it has previously done. If you want additional returns or more services go to the private sector but if it goes wrong don't coming running back to the taxpayer.

At one fell swoop - you would probably destroy "normal" banking.

I wonder would teh commercial banks countenance such an idea as they NEED the normal low risk "investors" to provide them with the large cash base to allow them to speculate.

If those who just wanted basic banking were told that the only safe place for their money was with a state owned bank, I think the commercial banking sector would just implode.

[Beardy10]

Well from what I have read so far it's clear that this Vickers bloke isn't exactly looking like a visionary genius.....he's been talking about the need to separate the investment banking divisions from retail operations. Well that all sounds fairly good but lets just think about who went bust/was bailed out and whether that structure would have made a difference

Northern Rock - No (didn't have any investment banking activities)
Bradford and Bingley - No (didn't have any investment banking activities)
HBOS - No (tiny investment banking activities)
RBS - Yes

and in the US

Lehman - No (pure investment bank)
Bear,Goldman,Morgan Stanley,Merrill - No (all pure investment banks...all were either supported or bailed out)
Citi - Yes
WAMU - No (US equivalent of NR)

Of course I am sure he will be bringing up the need for better and greater regulation and highlighting the massive failings at the BoE and FSA. Oh hang on a minute he used to be Chief Economist at the BoE.....guess he won't be doing that then. Waste of time.

[Ozzie Osmond]

Eric Mc said:

If those who just wanted basic banking were told that the only safe place for their money was with a state owned bank, I think the commercial banking sector would just implode.

The only truly "safe" place:- index-linked National Savings, with a tax-free return ahead of RPI inflation.

Except that one of ConLibs first actions was to stop savers buying index-linked National Savings.....

All of which helps the commercial sector get away with its wonderful "2% negative real interest" savings offers. Vigorous competition on the High St? Why bother when you don't have to.

[Fittster]

Eric Mc said:

Fittster said:

Eric Mc said:

So the state provides "no risk" banking?

What if the Post Office gets privatised?

It's not 1980, you don't have to privatise everything any more

The state could provide a simple banking system, as it has previously done. If you want additional returns or more services go to the private sector but if it goes wrong don't coming running back to the taxpayer.

At one fell swoop - you would probably destroy "normal" banking.

I wonder would teh commercial banks countenance such an idea as they NEED the normal low risk "investors" to provide them with the large cash base to allow them to speculate.

If those who just wanted basic banking were told that the only safe place for their money was with a state owned bank, I think the commercial banking sector would just implode.

So in your opinion the dynamic, efficient, entrepreneurial private sector banks couldn't compete with a nationalised bank? Not very PH of you.

If a nationalised bank would be such a super organisation maybe we should completely nationalise RBS.

Considering the private banking sector was able to compete successfully with Giro bank for 30 years, why could it not do that today? Are they paying out such large wages these days that they have become uncompetitive