In its steady plod towards a better regulated financial sector, the government took an important step this afternoon. In his response to the report published in September by Sir Alan Vickers and his colleagues at the Independent Commission on Banking, the Chancellor put the government seal of approval on most of that report’s proposals.
Osborne promised ringfenced retail banking; increased capital requirements that go beyond what international regulations require and provide a “bigger cushions to absorb losses without recourse to the taxpayer”; and a wider choice of banks on the high street. The government will legislate on these reforms in this Parliament, said the Chancellor.
The Chancellor also used the statement to make a surprise announcement on the future of the Royal bank of Scotland, something the government has a say in as a shareholder, as well as a regulator. The future of the bank—whose 2008 bailout was, according to Osborne, “the biggest in the world”—will be a humbler one. It’s investment banking division will be downsized and lending to British businesses will become the bank’s strategic focus.
Economists will digest today’s news in the days to come. Some will doubtless find fault in the small-print of today’s announcement; others are bound to question whether a greater sense of urgency is needed on such an important question. Politically, however, a snap judgement on Osborne’s statement is much easier. Put simply, today was a good day for the chancellor and a good day for the coalition.
For the coalition, reform of the financial sector is overwhelmingly an area of common ground. In the idea of ringfencing retail banking, supported by Osborne today, the echoes of Vince Cable’s well-established critique of “casino banking” are hard to miss.
For the Chancellor and his Conservative colleagues, his statement today was a chance to show balance and nuance in their stance towards the city.
Osborne said the government was “determined to do better at protecting British taxpayers from the cost of failing banks, while at the same time acknowledging the importance of the financial sector to our country.”
“But the strength of this industry is also a potential weakness to the economy if not properly regulated,” said Osborne.
These words will reassure those worried that, after Cameron’s prioritisation of the city in EU negotiations, Conservatives just think what’s good for banks is good for Britain.
As for Labour, Balls’s prissy opening, a complaint that he hadn’t been given Osborne’s statement long-enough in advance—he had just eight minutes, we were told—will have raised spirits on the government’s benches days before the Christmas recess.
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