Cable: CBI banking comments were 'disingenuous in the extreme'

Business secretary Vince Cable has slammed comments by the CBI criticising proposals to ring-fence banks. Fight, fight, fight...

by Emma Haslett
Last Updated: 06 Nov 2012
More wrangling between the banks and the Government this morning, after business secretary Vince Cable hit back at accusations that new banking reforms could tip the economy back into recession. Yesterday, CBI director general John Cridland said that forcing banks to ring-fence their retail arms from their investment arms could damage the economic recovery. Never one to mince his words, in an interview with the Times this morning, Cable said that sort of talk is ‘disingenuous in the extreme’, and that banks are trying to ‘create a panic’ to avoid having to meet potential new capital requirements.

All this squabbling has come ahead of the final recommendations due to be published in a couple of weeks by the Independent Commission on Banking, which is responsible for coming up with ways to avoid another banking crisis. The commission, led by ex-Bank of England chief economist Sir John Vickers, published an interim report in April, which recommended ring-fencing banks’ retail operations from their investment arms. It also said taxpayers shouldn’t be the ones who pay for future losses, and that, in the event of another banking crisis, it should be depositors, rather than creditors, who are paid back first.

Naturally, the banking world took issue with that: British Banking Association chief exec Angela Knight said banks should be able to ‘finance the [economic] recovery first, pay back the taxpayer next’ – and only once they’ve done all that should they have to start thinking about reform. But recent history suggests the only recovery they’ll be interested in financing is the one in their own pockets. There are indications certain politicians are on the side of the banking lobby: Chancellor George Osborne, for instance, has hinted that any recommendations might not be implemented until 2019…

Cridland’s concerns are understandable: his argument was that anything which might prevent banks from lending to business (ie. higher capital requirements) could undermine the recovery. Or, to put it another way, any regulations imposed by the Government give banks an excellent excuse not to do something about their hitherto-dire small business lending figures. But Cable is adamant that banks need to be kept on a tighter leash: ‘the governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem,’ he pointed out. ‘We can’t have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer. This can’t go on and it has got to be dealt with.’

To be fair to the Government, it’s managed to wedge itself between a rock and a hard place on this issue. On the one hand, if it ignores banks’ warnings and imposes the banking commission’s recommendations, and they do help to tip the economy back into recession (or a ‘great depression’, as one analyst rather dramatically called it), banks will be able to place the blame firmly on Cable et al’s shoulders. On the other hand, if it decides to put off the reforms and there’s another Lehman Brothers-type banking catastrophe (as some analysts have predicted) which leaves depositors out of pocket, the Government will also shoulder the blame. So it’s a tough decision for the chaps at No. 10. Rather them than us…

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