Vickers Report* (*actual contents may vary)

 By Craig Grobler

One of the key criticisms we at nef made of the final ICB report was that there was no good reason for such a long implementation timetable other than to allow plenty of time for the banking lobby to set to work on watering down the reforms.

Now read the words of Elisabeth Rudman, Senior Vice President in Moody's Financial Institutions Group in London:

“The final report published by the ICB will not trigger any immediate rating changes for UK banks. Our decision reflects ...... the expectation that the legislation will require a lengthy drafting process, as well as a longer-than-expected implementation period which may extend to 2019, increasing the likelihood that the final measures may differ from the current proposals." (author’s emphasis)

Our widely cited report ‘Quid Pro Quo’ calculated the too-big-to-fail subsidy for the biggest 4 UK banks at £46bn for 2010. This subsidy arises from the cheap borrowing costs that large banks can access because investors know that the taxpayer stands behind them. As we can now see, not only have the ratings agencies made no immediate change in their assessment of the TBTF risk, they doubt that measures to tackle it will ever be implemented in the form that Vickers proposed.

So, no prospect of the taxpayer being let off the hook anytime soon.

Which raises an interesting point – surely all bonuses, executive pension pots, and dividends should be held in escrow until the reforms are actually implemented? The cash can be safely released once the risk of reckless banking has been returned to the bankers. Quid pro quo.

There is a broader lesson. As radical as Vickers was purported to be, we have really only scratched the surface of a financial system that is dangerous to prosperity, and fails to deliver what is in the public interest. The Government’s contortions in explaining why a new wheeze such as ‘Credit Easing’ is required without wanting to admit that Project Merlin has failed is ample demonstration of this.

Our banks are neither safe nor useful.

The real reason why the Vickers reforms will probably never be implemented is because the chances of avoiding another financial meltdown before 2019 are beginning to look vanishingly small.

Which is why we are currently working on updating our response to the last financial crisis – From the Ashes of the Crash – because next time we cannot afford for reform to be kicked into the long grass.