banks should not be broken up, as it would damage British society, chancellor George Osborne told an influential parliamentary commission yesterday.
He also argued that he was right to adjust Vickers’ recommendations to exempt small banks from some regulations in an effort to stop the rules hurting competition in the sector.
Osborne criticised the Parliamentary Commission on Banking Standards (PCBS) for asking questions about the structural reforms of the banking sector, arguing that he has worked long and hard on the reforms and does not want to see them undone at this stage.
“Be aware of the consequences of this. You would be unpicking the consensus that has built up over the last two years, and unpicking the work of Sir John Vickers and the Independent Commission on Banking (ICB),” Osborne warned the PCBS.
“This work has been accepted by all major parties and I am on the verge of getting on with this.”
But Commission chairman Andrew Tyrie hit back at the pressure the chancellor tried to exert over the MPs and peers: “Just because something has achieved a consensus does not mean it is right.”
And other MPs hit out at Osborne for establishing the committee with the job of going over banking reforms, only to disagree with its attempts in doing exactly that.
The commission also criticised the chancellor for asking them to scrutinise the bank reform plans, then failing to allow them to see the details.
Osborne argued that legislation giving power to regulators to monitor banks is more important than the details, because the details will change in future as banks adapt to the rules. But MPs and peers were not convinced, as they cannot yet see the rules as they will stand initially.
Osborne also pushed for the PCBS to introduce a new professional body for bankers, similar to that for doctors and teachers enabling members to be struck off for bad behaviour.
WHAT OSBORNE SAID
■ On big banks: “We don’t have a huge number of large banks, sadly … [and] if we aggressively broke up all of our big banks, I am not sure that we would benefit from it as a society.”
■ On Vickers: “I created the Vickers Commission to bring together disparate voices to form consensus. The answer Vickers came up with, and the government’s response, is the best approach to issues of structure in the banking system.”
■ On too big to fail: “Ultimately the person doing my job, when faced with the decision on letting a bank go bust has to have the confidence to say “yes” because Vickers has given them the confidence people can still go to cashpoints and get their money out. If that person in the future is not confident, then we as a parliament will have failed.”
■ On regulatory costs: “This is a significant cost to the industry. Yet the same MPs who want to screw down the banks also want the banks to lend more.”
■ On the ringfence: “Certain things like deposit taking must be in the ringfence, while others like market making should be out of it. But on other issues, like SME credit, Vickers recommends flexibility, where the industry may decide. We will just make sure the fence is high and not permeable.”