Osborne bullies and misleads the Banking Standards Commission

Ben Chu

vickersosborne Osborne bullies and misleads the Banking Standards Commission

Sir John Vickers (left), banks (centre), Osborne (right)

George Osborne gave evidence to Andrew Tyrie’s Banking Standards Commission on Wednesday.

I didn’t see it live but, reading the transcript, the Chancellor comes across as rather bullying, effectively threatening the Commission that its recommendations will be ignored if the members dare to challenge the “consensus” that ring-fencing retail banking is preferable to full separation of our universal banks.

I hope the committee ignores this. From the tone of their questions it sounds like they might.

And if they need any encouragment, I would point them in the direction of a somewhat misleading section in Osborne’s evidence to them.

He referred to the analysis of the Vickers Commission’s estimated £4-7bn cost to the banks of implementing ring-fencing:

“There is a very considerable cost to the industry in what we are doing. We made it clear that there are going to be several billion pounds of set-up costs and several billion pounds of ongoing costs of implementing the ring-fencing. I have taken a judgment – Parliament will have to see whether it agrees with me or not – that this is a price worth paying and that it is outweighed by the broader economic benefits that greater stability will bring…. As the impact assessment makes clear, this legislation is a significant cost. I think that full separation would be an even greater cost and I’d have to justify it. I would be prepared to do so if I thought it was bringing benefits that outweighed that cost.”

The Chancellor thus implied that Vickers had carried out a rigorous cost-benefit analysis of both ring-fencing and full separation and concluded that ring-fencing came out ahead.

But it did nothing of the sort, as I pointed out in September 2011 when the final report emerged.

It’s true that Vickers asserted that there were broad economic advantages to ring-fencing over full separation. But it never put a figure on this advantage, or showed any evidence for it. And some of its own conclusions undermined the assertion. The Vickers report was in some respects a decent report, but by failing to analyse the case for full separation in the same detail as ring-fencing it was like Hamlet without royalty.

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