Spotlight on the Vickers report – the real world effect
Event at Cass Business School examines effects of the ICB recommendations
Conceptually the Vickers report makes a strong recommendation but what about practically?
That's one of the main themes that emerged in a recent Association of Corporate Treasurers (ACT) event at Cass Business School. Titled 'Spotlight on the Vickers report - the real world effect', the event was chaired by John Grout, Policy and Technical Director of the ACT.
The panel comprised Chartered Accountant and CEO of City of London Group plc Eric Anstee, Cass Finance Lecturer Dr Pete Hahn, economist and ICB representative Greg Thwaites and Former M&S chairman and City leading light, Lord Paul Myners.
During the event the report came in for plenty of criticism from the panel.
Pete Hahn commented that the report was part technical and part political - that it tries to fix former problems rather than looking forward and that he'd have liked to see more blue sky thinking. He also said the report overlooks key issues including small business lending.
Lord Myners suggested that the report does little to facilitate competition in the market and doesn't address the moral issues that bought about the crisis. He stated that the ring-fencing recommended between the banks' retail and investment arms is an extension of the 'living wills' system (recovery and resolution plans under which deposit-takers and large investment firms could be wound down with assets quickly returned to clients) which so far "hasn't been very effective".
The latter argument was rejected by the ICB's Greg Thwaites who argued that the recommendations went significantly further.
Eric Anstee suggested that the market faces huge liquidity problems and the report doesn't help this, rather making 'life worse' by increasing capital requirements. He continued that the impact for corporates and small and medium enterprises (SMEs) will be that they find it harder to get loans, and that's 'a disaster' when we need SMEs for growth.
Greg Thwaites countered that pre-crisis bank funding was artificially cheap. The Vickers report recommendations will raise banks' cost of funding but the alternative is to subsidise banks and 'we shouldn't be prepared to do that'. He stated that the costs are imperative to 'get the tax payer off the hook'.
The panel also had some positive things to say about the report. Lord Myners said that the report takes us in a 'good direction' but stated he doesn't think it goes far or fast enough. Improved governance and management is critical he continued, a point Greg Thwaites agreed with although he pointed out that it is very difficult to legislate for good management.
Pete Hahn ended the debate on a pragmatic, if gloomy note, saying that for a long time banking was unrealistically cheap, we are now in a readjustment phase and the reality is that when it comes to corporate finance there is going to be less choice - fewer banks will give you money and they'll be fewer people providing the services you want, and there's not much the ICB can do about that. "Banks were boring and they are going to go back to being boring".