Mr Osborne paid lip service to the year-long review as a “decisive moment” in the history of banking in Britain and promised to build a “new banking system which works” but the reforms will take much longer than anyone expected – they won’t all be in place until 2019 – and are not by any means as far-reaching as many economists had hoped.
Sir John Vickers, Warden of All Souls College, Oxford, described the 358-page report as “fundamental and far reaching” and urged the Conservative-led Government not to water down his recommendations or “pick and mix” from his proposals. He said the coalition must seize this opportunity to establish a banking system that gets taxpayers “off the hook”.
He proposes that the retail side of British-based banks should be ring-fenced from their speculative investment arms – the much-criticised casino capitalist side of the baking business – in order to properly protect High Street customers and the taxpayer the next time the banks get into trouble.
The Vickers Report also hits out at bankers’ bonuses – it criticises “large pay packages at a time when taxpayers are on the hook for the banks” – says the industry should be referred for a competition investigation in 2015 and wants to make it easier for customers to change bank accounts.
The banking lobby – which has powerful friends in the Conservative Party – fought hard against the ring fence plan and a capital adequacy proposal and tried a “smoke and mirrors” exercise over the harm any toughening of the rules would allegedly do to the British economy.
Most of these arguments failed to find traction. But the big banks, which, under New Labour, became used to dictating the terms of their engagement in this country, are unlikely to give up easily and will continue to lobby Mr Cameron and Mr Osborne.
Shadow Chancellor Ed Balls said: “The irresponsible actions of banks around the world caused the financial crisis for which families and businesses have paid a heavy price. It’s vital we all learn lessons and do everything we can to protect taxpayers and customers in the future. That is why we welcome this important and authoritative report.
“The ring fence is a tough and radical proposal. It is right that banking services for individuals and small businesses should be protected.
“As Sir John Vickers had made clear the stalled recovery is not an excuse for ducking reform. The government should get on and legislate rapidly, as the report says, to provide certainty and the forthcoming Financial Services Bill is an ideal opportunity to do that. And it should accelerate action to introduce more competition and transparency into banking which will help consumers and small businesses.”
John Denham, the Shadow Business Secretary, said: “These radical reforms are a step in the right direction in addressing the problem of bank failure. But the extra money these reforms will cost the banks should not be passed on to the consumer or small business through increased lending rates.
