This is a world where stable retail lenders are “insulated” from “global shocks” brought on by reckless investment bankers and one where taxpayers are finally off the hook for bank losses – thanks to John Vickers et al.
A reality check: much of the report pored over by analysts, bankers and journalists yesterday merely reiterates longstanding regulatory arguments.
But it would be wrong to conclude that nothing has changed.
Unlike discussions over the loss-absorbing capacity of banks’ debt, which international regulators have been examining as a way to protect taxpayers for months, Vickers’ proposal for a ring-fence around banks’ retail arms is both new and unusual.
If implemented in full, it means that RBS and Barclays will have to undergo structural changes that will wipe between 14 and 27 per cent off their pre-tax profit, according to some speedy number crunching conducted by Credit Suisse yesterday. Lloyds could see its earnings cut by between four and 28 per cent.
Commission member Martin Wolf warned yesterday that banks must learn to accept these lower returns, akin to those of “absolute core utilities”. “A safer, lower return can be really quite attractive,” he declared.
Unfortunately, it might not be attractive enough to keep credit flowing at a rate that is sufficient to feed the UK’s nascent recovery. And the jury is still out on whether the returns will indeed be “safer”. There’s no question, however, that they will be lower.