Proposed banking reforms should go further

The Vickers Report on banking reform sounded tough. But its fiddly proposals could end up being worse than doing nothing at all, says Matthew Lynn. The problem is that it ignores just how good the bankers are at getting around the rules.

Royal Bank of Scotland went bust. Halifax Bank of Scotland had to be hustled into a merger with Lloyds TSB and then expensively bailed out by the government. A string of smaller mortgage lenders from Northern Rock to Bradford & Bingley had to be rescued in one form or another. And what has Britain come up with in response to the worst banking collapse in its history? A fiddly proposal to ring-fence the risky trading activities of the main banks from the deposits of ordinary customers. The Vickers Report, which was finally published on Monday, has been dismissed by many analysts as a damp squib. But it's much worse than that. It has forgotten the most important lesson in finance: that the rules are always for someone else.

The Vickers Report sounded tough. British banks will, by 2019, be forced to separate out their retail and investment banking operations. In theory, there will be a strict divide between the day-to-day business of running current accounts, offering mortgage loans and providing credit to small businesses, and the high-stakes investment banking operations. The banks will also face tougher capital requirements than most of their rivals in the rest of the world.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up
Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.