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.

[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.

[Ozzie Osmond]

wolves_wanderer said:

I think in this climate a lot of people would remove deposits from normal retail banks, after all, its not like they'll be losing masses of interest at the moment.

Where would they put their savings instead, given that there are low caps on National Savings?
Or would you remove the caps and maybe remove the tax-free ststus as well?

[Ozzie Osmond]

Ali G said:

House prices should drop (plumit?) over time...

How so? Have you not been following the basics of supply and demand?

Demand for accommodation remains very buoyant, after all everyone has to live somewhere, and residential rents are very firm. Sufficiently firm to deliver 7% returns at current market valuations. Against this background it's hard to see much of a fall in prices. Inflation at 5% certainly erodes values but still leaves a landlord with a positive return.