CSFI Centre for the Study of Financial Innovation CSFI The Centre for the Study of Financial Innovation is a non-profit think-tank, established in 1993 to look at future developments in the international financial field – particularly from the point of view of practitioners. Its goals include identifying new areas of business, flagging areas of danger and provoking a debate about key financial issues. The Centre has no ideological brief, beyond a belief in open markets. Trustees Governing Council Minos Zombanakis (Chairman) Sir Brian Pearse (Chairman) David Lascelles Sir David Bell Sir David Bell Geoffrey Bell Robin Monro-Davies Rudi Bogni Sir Brian Pearse Philip Brown Peter Cooke Staff Bill Dalton Director – Andrew Hilton Sir David Davies Co-Director – Jane Fuller Abdullah El-Kuwaiz Senior Fellow – David Lascelles Prof Charles Goodhart Programme Coordinator – Lisa Moyle John Heimann John Hitchins Rene Karsenti Henry Kaufman Sir Andrew Large David Lascelles Robin Monro-Davies Rick Murray John Plender David Potter Mark Robson David Rule Sir Brian Williamson Sir Malcolm Williamson (designate) Peter Wilson-Smith Minos Zombanakis CSFI publications can be purchased through our website www.csfi.org or by calling the Centre on +44 (0) 207 493 0173 Published by Centre for the Study of Financial Innovation (CSFI) Email: [email protected] Web: www.csfi.org ISBN: 978-0-9570895-0-1 Printed in the United Kingdom by Heron, Dawson & Sawyer CSFI E-mail: [email protected] Web: www.csfi.org CSFI Contents Introduction ................................................................................................................................................................ 1 Ros Altmann Argues that the Vickers proposals will take too long to implement and are too soft on excessive remuneration ............. 2 Tim Ambler Says the Vickers report fails the competition test .......................................................................................................... 5 Henry Angest and Atholl Turrell Propose a more radical solution than ringfencing and capital ratios – more competition, as well as the threat of personal bankruptcy and prison for failed bankers .................................................................... 7 Sir Win Bischoff Argues that Vickers can deliver the ‘generational transformation’ that UK banking needs ........................................... 11 Roger Bootle Says Vickers is good, given the constraints. But financial reform needs to go much further ........................................ 13 Clive Briault Warns of flawed assumptions in the Commission’s report – and of potential unintended consequences ..................... 15 Sir Samuel Brittan Wants to see a new public lending bank, based on the state-owned banks ................................................................ 18 Eamonn Butler Argues that Vickers is the wrong answer to the wrong (or even a non-) problem ......................................................... 20 Sir Ian Byatt Looks at how ringfencing worked in the privatised water industry and draws some parallels ....................................... 23 Geoff Cook Looks at the history of money – and how offshore centres can help ........................................................................... 25 Diane Coyle Argues that Vickers is a modest step in the right direction in the face of a new Great Financial Crisis .......................... 27 Hugo Dixon Argues that ringfencing is all very well, but “living wills” provide the most effective protection against systemic crises ............................................................................................................................................... 29 Charles Dumas Argues that the ringfencing proposals in Vickers would not have averted the 2008 crisis, which was essentially political and economic .............................................................................................................. 31 Christopher Fildes Grumps about the good old days – and proposes a bigger role for supervisors .......................................................... 33 CSFI E-mail: [email protected] Web: www.csfi.org CSFI Michael Foot Urges a focus on living wills ........................................................................................................................................ 35 John Hitchins Says the time for talking is over. Now we need to implement Vickers – but he worries about the lack of a level playing field ..................................................................................................................................... 37 Sir Martin Jacomb Argues that Vickers is wrong: a well-run universal bank can be perfectly safe. But he deplores prop trading ............... 39 John Kay Worries about the long-term influence of lobbyists on implementation of the Vickers reforms ..................................... 42 Angela Knight Calls for a frank acknowledgment that the ICB’s proposals will increase banks’ costs - and warns that investors may react negatively ............................................................................................................ 44 Michael Mainelli Urges the City to take the lead – write its own ‘London Directive’ on financial services regulation ............................... 47 Philip Middleton Sees profound changes ahead for the business models of British banks – and a set of regulatory changes that may well be emulated elsewhere ........................................................................ 49 Ian Plenderleith Argues that it is hard to see a less bad way of reining in moral hazard ........................................................................ 51 David Potter Urges a focus on new entrants in the banking market ................................................................................................. 53 Vicky Pryce Worries about the deteriorating macro-economic environment – a very different background than envisaged when the Commission was launched ................................................................................................. 55 Brian Quinn Wonders whether the ICB’s recommendations will have been overtaken by the time they are implemented in 2019 .................................................................................................................................................. 57 John S Reed Supports Vickers – but ‘risks will remain’ .................................................................................................................... 60 Sir Adam Ridley Urges regulators to look at the insurance model to mitigate systemic risk – and deplores Vickers’s failure to address the wholesale banking market .......................................................................................... 61 Barry Riley Argues that the ICB’s recommendations do nothing to address the fundamental problem of growing uncompetitiveness in the US and Europe .................................................................................................. 64 CSFI E-mail: [email protected] Web: www.csfi.org CSFI Gene Rotberg Worries that retail banks might be tempted to take on even more risk to goose returns – unless they get a special deal to ensure their profitability ............................................................................................. 67 Jamie Stevenson Believes we should look to Spitzer’s ‘Global Resolution’ to see how banks run rings round regulations ...................... 69 Sir John Stuttard Urges more emphasis on the auditors’ role – particularly in relation to corporate governance ..................................... 71 Kay Swinburne Worries that, if the government implements Vickers, it may be in breach of EU single market commitments ............... 73 Mark Tennant Argues that Vickers provides only a local solution to the real problem: that of global banks that are Too Big To Fail .... 75 Peter Thal Larsen Suspects that bailout-free banking may prove an unattainable goal ............................................................................ 78 Martin Vander Weyer Argues that Vickers is useful as far as it goes, but that it cannot address the underlying, cultural problems - and it needs to distinguish between bonuses and dividends ......................................................... 80 Peter Vipond Emphasises the European dimension and worries about activities outside the ringfence ............................................. 83 Stani Yassukovich Wonders whether the real problem might not be too much capital in banks, driving them to riskier activities – but he doesn’t worry about London’s appeal as a financial centre ............................................... 85 CSFI E-mail: [email protected] Web: www.csfi.org CSFI Views on Vickers: responses to the ICB report Introduction The report by the Vickers Commission – Sir John Vickers, Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf – that was published on September 12, 2011 is a formidable document. It is clearly intended to give UK banking the biggest shake-up it has had since Big Bang a quarter-century ago. It is also intended (at least, I assume so) to act as a model that other countries, in Europe and elsewhere, might choose to emulate. What is less clear (at least to me) is whether it is intended to “put the bankers back in their box” – to punish them in some way for what the general public (and the politicians who represent them) see as their culpability for the continuing economic