Banking: compound interests | Editorial

Despite claims by the British Bankers' Association, market turmoil is no reason to delay reform

There are, crudely, three interested parties in the ongoing saga of the banking bust – the banks themselves, the wider business community and the taxpayer. All three are in tension, which makes life rather tricky for the CBI boss, John Cridland, who is paid to represent both the first and the second.

Should he side with the industrialists who say bankers' arms must be twisted into doling out less restrictive loans? Or should he stand by the financiers, who insist they can only hope to recover their strength by living cautiously? Striking the right balance between the forces of thrift and productivity would be tough at the moment, even if vested interests were not a concern. But vested interests are the CBI's whole reason to be. So Mr Cridland has effectively sought to unify his bickering members by rallying them against a common enemy, and training his guns on the taxpayer.

The mild-mannered CBI chief did not explain himself in quite these terms when he told the Financial Times that it would be "barking mad" to force bank reforms through just now. But make no mistake, the taxpayer, who has involuntarily invested in banking once, will be the big loser if the day is not seized when the independent banking commission reports in a fortnight. Its provisional prescription was for higher capital requirements, so-called bail-in provisions and a measure of separation between retail and investment banking. If there was a shortcoming in this plan, it was that it was not sweeping enough; otherwise, every suggestion was both pragmatic and necessary.

This summer's market gyrations have exposed afresh the frailty of the financial system. Despite claims by the British Bankers' Association, however, this is no reason to delay. Rather, the flammable bridge that has emerged between bank funding and sovereign solvency points to installing fire extinguishers at once. After all, the problem of banks too big to fail will pale next to that of banks too big to save, which is what will happen next time around.

There is no reason why new arrangements for bail-ins, or the ringfencing of high street banking, need lead to the Solihull branch of the Countrywide refusing a widget manufacturer's loan. An overly rapid increase in capital requirements could have that effect, and therefore jeopardise investment and growth over a dismal immediate horizon. The solution, however, is not to delay the legislation, merely to pace its implementation. Vince Cable, who yesterday took the Cridland argument to task, is not merely venting a nation's fury. His refusal to let this greatest of crises go to waste also reflects a hard-headed concern for the interests of the taxpayer.

Editorial

The GuardianTramp

Related Content

Letters: The acceptable face of banking
Letters: The answer to 'what on earth will it take to change British banking culture?' is an exodus by individuals and companies from the guilty to the ethical

09, Jul, 2012 @8:00 PM

Article image
Learning to trust bankers again is the very worst thing we could do | Giles Fraser: Loose canon
Loose canon: They’re subject to the pull of greed, just like the rest of us. It’s only our critical vigilance that can ensure the banks never rip us off again

Giles Fraser

12, Nov, 2015 @3:57 PM

Article image
Corbyn must slay the zombie ideas that blight our economy | Aditya Chakrabortty
Labour’s real battle will be to challenge the same undead orthodoxies it failed to kill off after the financial crash of 2008 – and the elite consensus that keeps them in place

Aditya Chakrabortty

29, Sep, 2015 @6:00 AM

Letters: We must move on from anger and reform the banking sector
Letters: Brown does not tell us how the one-way bet – heads I win, tails you lose – indulged in by financial players should be reformed

13, Dec, 2010 @12:05 AM

Article image
David Cameron … hypershambles ahoy! | Simon Hoggart's sketch

Simon Hoggart: EU referendum to the Barclays Libor scandal, the PM, awash with Eurosceptics and bailouts, drifts to new shambolic waters

Simon Hoggart

02, Jul, 2012 @6:40 PM

Article image
Europeans have been blackmailed and betrayed. No wonder they're angry | Philippe Legrain
Philippe Legrain: The financial crisis led to a eurozone shaped by Germany's narrow interests as a creditor. We need a freer, fairer Europe

Philippe Legrain

15, May, 2014 @6:56 PM

Article image
Europe is haunted by the myth of the lazy mob | Ha-Joon Chang

Ha-Joon Chang: For too long we have been told individuals control their own destinies when the reality is poverty and inequality are structural

Ha-Joon Chang

29, Jan, 2013 @9:00 AM

Article image
Can Mervyn King save the British economy? | Aditya Chakrabortty
Aditya Chakrabortty: The Bank of England governor is probably the man most responsible for getting Britain out of recession. So can he do it?

Aditya Chakrabortty

18, Jun, 2012 @7:00 PM

Article image
Yanis Varoufakis: ‘If I weren’t scared, I’d be dangerous’
With the world’s gazed fixed on Athens, a former academic with a penchant for leather jackets has taken centre stage. With no plan B and nothing to lose, he’s ready for battle — and if it all goes wrong, he says, he’ll just get back to his book

Helena Smith

13, Feb, 2015 @4:46 PM

Article image
Is Lithuania another Iceland banking crisis in the making? | Patrick Collinson
Revolut customers are protected by the Bank of Lithuania – but it’s not certain it will pay up

Patrick Collinson

22, Dec, 2018 @8:30 AM