Derren Osborne’s Great Bank Robbery

This week we are told that the long-debated Banking Reform Bill will finally pass into law. Except of course that most of its operative provisions are in secondary legislation which we have yet to see, and over which parliament will have little or no say as the purpose of secondary legislation is to allow government to govern without the nuisance of parliamentary scrutiny.

However we do know what the broad shape of the new regime will be. Because it is to all intents and purposes exactly what we have at the moment.

Andrew Tyrie and his colleagues cannot be accused of rearranging the deckchairs on this Titanic. They have made detailed recommendations for the lace on the officers’ uniforms. But icebergs have a nasty habit of ignoring watertight compartments when they tear an enormous gash on the length of the whole vessel, and electrical systems for sealing the bulkheads won’t work when they are required.

Tyrie and his group of old age pensioners have been the distraction job skillfully orchestrated by the chancellor to take our attention off what really matters.

When the next banks go bust we have still failed to prescribe who should pay. Subordinated bondholders may be bailed in, but where in the queue are larger depositors as opposed to taxpayers generally? The detailed provisions are contradictory and incoherent, as you will know from my previous posts about clause 9. In practice the answer will again be determined by the whim of the chancellor. When the ship goes down, expect cannibalism on the raft.

The press have conspicuously failed to expose this scandal, concentrating instead on trivia such as the approved persons regime.  By failing to ask simple questions about how banks make money, we have allowed a structure to survive for another generation that will lose money in exactly the same way as before, but probably on an even larger scale.

Postscript

The Financial Times this morning (17 December) has a report “Banking bill has ‘good chance’ of doing the job” which states that “insured retail depositors will be given preference over other debtors if a bank fails”, but does not tell us that since these depositors are already insured, the beneficiaries of this provision are not the depositors themselves but the banks who have reimbursed them and who acquire their claims through subrogation. In fact, as readers of this blog will tire of hearing, this measure advantages banks over the interests of ordinary customers who happen to have more than a very modest amount in their account.

This is a provision which the press have consistently failed to highlight throughout the debate over the bill despite the fact that it flies in the face of the principle that “the financial sector pay for its own failings” (in the European Commission’s phrase). The silent subordination of depositors, including large businesses, will help neither stability during the next crash nor London’s efforts to remain a major financial centre.

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