GOOD on Barclays for promoting Bob Diamond, head of the bank’s investment banking unit, to be the firm’s overall chief executive. He is the best man for the job, proving himself again with the successful integration of Lehman’s US operations. Yet given Diamond’s demonisation in the broadcast media and popular press, not least by the likes of Vince Cable and even the prime minister, it was a brave move; it was also a strong statement by one of the few banks that didn’t require a taxpayer bailout that it will do what is best for its global shareholders, rather than pander to vote-hungry, City-hating UK politicians. This is something that ought to reassure markets: shareholders are still nursing big losses from the financial crisis, even from the better managed, non-bailed out firms such as Barclays.
As a result of the dominant narrative of the recession, the politics of envy has made a spectacular return. One of the main objections to Diamond’s appointment yesterday was that Barclays’ CEO-designate was too wealthy; apparently, only poor bankers or those willing to work for much lower salaries should be allowed to run banks. But given that taxpayers did not bail his bank out, that part of his fortune comes from his stake in a very successful wealth management arm he helped to build up for Barclays, and that he will be paying vast amounts of tax when he moves back to the UK, it is hard to see what the problem is with Diamond’s wealth. If Barclays’ customers object, they are free to move their business. Barclays, like other banks, has reformed its compensation practices to put emphasis on long-term incentives; there is nothing in Diamond’s new employment contract which will fuel short-term risk.
Investment banks are not casinos; and even if they were, critics should remember that the central rule of gambling is that the house always wins. Casinos always make money; they don’t go bust – so in that sense “casino banking” should be a good thing for taxpayers, shareholders and the stability of the banking system. I jest, of course, but the terminology of this debate is truly idiotic.
What makes banking dangerous are traditional loans: it is those that go dud and bring down economies, not trading. Another weakness is the mismatch between the duration of assets (loans) and liabilities (bank deposits or money market borrowing) but again this is nothing new. Despite the new-fangled derivatives, this recession was very much like all the others. Sub-prime lending was at the heart of the financial crisis; at its most basic, a traditional form of retail banking gone wrong. Investment bankers repackaged the bad loans; but they only got that opportunity because of stupid, traditional lending decisions.
Instead of bashing those who provide huge tax revenues and employ tens of thousands of Londoners, the government ought to focus its attention on 2010’s real financial disgrace: the abysmal failure of HMRC and its computerised pay as you go income tax system to get its sums rights. Around 1.4m people are about to be sent letters demanding £2bn in underpaid tax, courtesy of official incompetence. There ought to be a purge at HMRC, with all top executives losing their jobs. Of course, it won’t happen, just as the officials and central bankers who did so much to fuel the bubble have walked away unscathed. It is high time politicians put their own houses in order, rather than try and chase away successful UK firms.