Think tanks give cool response to Coalition's banking reforms

By Tim Montgomerie
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Pasted below are some reactions of centre right thinkers to the Chancellor's statement on banking reform.

Tim Ambler, Senior Fellow at the Adam Smith Institute, says:

“The Chancellor may be rushing out his 80 page response to the Vickers report to get the Business Secretary off his back rather than because of any real urgency. Implementation is not until 2019. Most of the detail is left unclear and consultations will continue. But it is a pity that he has nailed his colours to the mast when most independent expert commentary has shown that the Vickers commission proposals will be bad overall for Britain, especially for SMEs, and bad for the international competitiveness of our bankers. The government cannot claim that competition on the High Street would flow from the Vickers report as it barely discussed the matter.  The target was to ensure the Treasury would not have to pick up the tab for failures by freezing the banking sector and making it even less competitive. But what banking in the UK really needs is more, not less, competition. It wasn't investment banks that caused the banking crisis, but the supposedly 'safe' retail banks such as Northern Rock and HBOS. Ring-fencing is simply the wrong solution to the wrong problem."

Prof. Philip Booth, Editorial Director at the Institute of Economic Affairs, said:

“There is a clear lack of decisiveness about how to approach the problem of banking regulation from the government. On the one hand, welcome action has been taken to ensure that depositors are treated preferentially in the event of a bank failure and to ensure that banks can be wound up in an orderly fashion. On the other hand, the government wants banks to hold much more capital to ensure that they very, very rarely fail. Discouraging failure so strongly also militates against the government's other objective of promoting a dynamic market with healthy competition from new entrants because it prevents the established banks from failing and exiting the market. The ring fencing of EEA deposit business is a clumsy mechanism that would not have made any difference to the banking crash of 2008. A more imaginative approach would have been to give the Bank of England a primary legal responsibility to ensure that banks could be wound up safely in the event of failure and also to give the Bank of England the power to impose structural change if and only if it was necessary to do so.”

Graeme Leach, Director of Policy at the IoD, said:

“We had mixed feelings about the final report from the ICB and we have mixed feelings about the Chancellor’s statement as well. We strongly support the measures aimed at improving competition in high street banking. High street banking desperately needs new entrants and this should be good for companies and consumers. The long timetable for implementation, stretching out to 2019, is also helpful. The last thing the economy and banking system need at present is an aggressive recapitalisation, with all the negative consequences for the money supply that would entail. Banks have enough to cope with at present from the euro crisis and any banking reform has to be mindful of this Sword of Damocles hanging over us”. Where we are less enthusiastic about the ICB report and the Chancellor’s statement is with regard to the impact of ring fencing. There must surely be doubt as to whether the ‘too big to fail’ problem has been solved. We remain sceptical that a major investment bank would be allowed to go down with no rescue attempt by the Government. The taxpayer is still on the hook.”

> Yesterday on Comment, Michael Robb warned that "Vickers banking reforms could make 2012 a very tough year"