Coffee House

An electric fence to keep the City of London’s light from dimming

21 December 2012

10:16 AM

21 December 2012

10:16 AM

The Parliamentary Commission on Banking Standards was conceived in those tumultuous days following the first Libor revelations. At the time, some hoped that its report would lay the blame squarely at the feet of a certain former city minister. But the cross-party committee of peers and MPs has produced a sober report this morning which makes for relatively comfortable reading for those Labour politicians whose regulatory system saw the birth of Libor rigging as it does not name them. It is slightly less comfortable for the Coalition, which now has to consider whether to beef up its existing plans for banking reform.

It doesn’t contradict the spirit of the Vickers reforms, but it does go further, calling for an ‘electrified’ ring fence between the retail and investment arms of the banks. This electrification includes legislation to ensure that the banks ‘comply not just with the rules of the ring-fence, but also with their spirit’. Currently, the Commission argues, there is a risk that that the ring fence is ‘especially vulnerable to erosion over time’. In a reminder of those cosy days when Labour and the bankers scratched one another’s backs, the report warns:

‘The Commission has also identified the propensity of regulated firms to seek to press at the limits of permitted activities for short-term economic gain, and the risks that such efforts might be supported by pressure on politicians to agree to convenient changes which reduce the long-term effectiveness of the ring-fence.’


If banks do not comply with the rules or the spirit of the ring-fence, then the Commission recommends that they should be forced to split up. These threats are all part of an attempt to restore confidence in the banking system: if politicians come away feeling at least relieved by the report, bankers will not. The report paints a discomfiting picture of the system, with Commission chair Andrew Tyrie saying ‘the latest revelations of collusion, corruption and market-rigging beggar belief’. Tyrie says his commission has produced ‘the clearest illustration yet that a great deal more needs to be done to restore standards in banking’.

The most important achievement of the Commission will be to restore confidence in the sector, so that the City is no longer seen as a cesspit, and so that other financial centres don’t see an opportunity to usurp London. If an electric fence can stop the City’s light from dimming, then it’s a bright idea.

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Show comments
  • Daniel Maris

    There’s growth and then there’s cancerous growth. I feel the City has been giving us too much of the latter. We’ve had the credit boom, we’ve had industry sacrificed to finance. We’ve had huge swathes of our housing property, especially in London, turned over to rich incomers working in the City. We’ve had the City acting like a huge magnet for mass immigration – sucking in office cleaners, airport staff, security guards, restaurant cooks and waiters, all prepared to live on minimal wages and with appalling housing conditions.

    The City should be shoved down our priority agenda and we should look to promote healthy growth such as the motor industry in the North East which is bringing in real wealth to the country.

    • TomTom

      The simple way is to make ALL Employees of Banks above a certain grade personally liable for Bank Equity with floating charges over their assets. Anyone starting a REAL business has to give guarantees to a bank but bankers expect a taxpayer guarantee themselves. It is an old saying that “A Bank is an Organised Conspiracy Against the Public Underwritten by The Government”

  • TomTom

    500 policemen raided Deutsche Bank HQ on 12 December and the homes of senior officers of the bank. Jürgen Fitschen, CO=DEo telephoned the Prime Minister of Hesse to get the police called off. Yesterday raided again. Deutsche Bank seems to be a criminal organisation from the amount of documentation relating to a myriad of transgressions the Police are seizing. That is a major bank posing a Systemic Risk to the Global Financial System. UBS is coming clean because the Swiss Government threatened to liquidate it rather than prop it up any longer. It is not just London but much of the crime occurs in London.

    Time to bring this circus to an end before the economic system is ended. Spain is bust because Bankers and politicians conspired against the Public as in Ireland, USA. In Cyprus 900,000 inhabitants seem to think the EU will put in 16 BILLION to rescue Cypriot banks full of Russian Mafia cash, This is getting stupid.

    Banks should be INSTRUCTED to prepare their good assets for removal to NEWCO Banks so the Zombies can die….the alternative is available in monochrome from the 1930s

    • dalai guevara

      Yes, this is a nice little LA confidential plot playing out right in front of our eyes, everyone’s has a role to play. This thing is -and this is my main point- the main site of where all the ‘filming’ should be taking place is here, in London, the derivative Gomorrah HQ. Why are we not looking properly? Well, most of the banks are now owned by the public, so the public is about to sue itself? All the others are long gone skiing to Switzerland or have relocated further east.

      Time to bring this circus to an end, indeed. ‘Repatriate’ powers in another sense of the word.

    • the viceroy’s gin

      It appears the preference is for OLDCO Banks. They’re being delivered of bales and bales of freshly printed cash, with which they rush off to the casino to see if enough Red 20’s hit to pump some life into their Zombie hides.

  • toco10

    What is wrong in naming and shaming the erratic and dysfunctional Gordon Brown,the dismal and obnoxious Ed Balls,the pompous Lord Myners and the nonentity that is Red Ed who caused the problems in our UK banking businesses in the first place through lack of effective supervision?

  • toco10

    What is wrong in naming and shaming the erratic and dysfunctional Gordon Brown,the dismal and obnoxious Ed Balls,the pompous Lord Myners and the nonentity that is Red Ed who caused the problems in our UK banking businesses in the first place through lack of effective supervision?

  • toco10

    What is the problem in naming and shaming the erratic and dysfunctional Gordon Brown,the dismal and obnoxius Ed Balls,the insincere Lord Myners and the lightweight Red Ed who caused most of the domestic banking problems in the first place by regarding supervision as pretty much unnecessary?

  • toco10

    What is the problem in naming and shaming the erratic and dysfunctional Gordon Brown,the dismal and obnoxius Ed Balls,the insincere Lord Myners and the lightweight Red Ed who caused most of the domestic banking problems in the first place by regarding supervision as pretty much unnecessary?

  • LB

    Oh, and missed off a few.

    Kaupthing Singer & Friedlander
    Heritable Bank
    Kaupthing Edge
    London Scottish – Another Scottish cock up. Perhaps if they get independence, we can dump the lot onto the Scots to sort out
    Dunfermline Building Society

    • TomTom

      Kaupthing Singer & Friedlander…….go look at the Icelandic owners and their criminal scam in Lithuania. Do you simply spout rubbish ? Can’t you actually RESEARCH this subject before you spout such inanity. Do you have any idea what a Bank Balance Sheet looks like, how many SIVs they have, how their subs are parked offshore, how many SIVs Barclays has in Cayman ? Do you know why RE-HYPOTHECATION is ? Do you know how Valuations are done ? Do you know what a REPO 105 is ? You know so little you must be a Cabinet Minister in the Treasury

      • LB

        So what do you want to know about what? Hazard rate models, CDO^n, credit risk, Basle III, ask away and I’ll answer.

        Why do they offshore vehicles? Primarily because the investors insist on it. If they didn’t people like you would want the assets of the vehicles to pay off NR debts.

        • TomTom

          Yes Non-Recourse Debts are a problem. i prefer to make Bankers tie their entire Net Worth into the Bank Equity Account…..every single piece of their assets with a Floating Charge

          • LB

            And how do we deal with politicians?

            4,700,000,000,000 pounds hidden off the books?

            That’s the real problem. Nowt to do with banks is it?

            • Daniel Maris

              LB –

              Are you talking about pension funds? Which pension funds are you including?

              • LB

                1. The state pension – no assets – big liabilties
                2. The state second pension – ditto
                3. Civil service pensions – ditto.

                All massive liabiltiies, All with no assets.

                The ONS estimates (its an underestimate because they haven’t factored in the triple lock properly.), comes to 4.7 trillion. Borrowing is 1.1 trillion. There are other debts too. Total is around the 7 trillion mark.

                Income is 0.55 trillion. Spending 0.73 trillion.

                Please tell us how spending more squares the books.

                The consequences of not doing so are very simple. Cuts to pensions, cuts to services. Screwing people over with taxes, but no services in return.

                • Robert Castlereagh

                  So Conclusion?

                • LB

                  It’s pretty obvious isn’t it. Not pleasant either.

                  Here’s my prediction, I’d be interested in your analysis. Or if you dispute the figures, which ones are wrong.

                  The obvious is that they state will default, in full, or in part, on its promises. Not paying the state pension is dire for most people because they have relied on, or been forced to rely on the state. That makes them destitute.

                  To postpone the inevitable, the state will look around and ask, where’s the money. They will then do a Hungary. Take all private pensions, replace them with a ‘promise to pay’, if they can. That delay’s things for a while, at the expense of those who did save. Doesn’t change the underlying reality.

                  They will then look at taxation. In particular, taxation with no services becomes the order of the day. Difficult when intellectual property can’t effectively be taxed at all, and you have freedom of movement of goods and services, plus capital. People won’t move, unless they have to, but their capital will move. Examples of this are Google, which move to Switzerland, and lots of hedge funds. Now they are just service companies, with the capital out of the reach of the UK. High tax rate, low tax base. They will slowly be forced to lower that high tax base, but I predict the cash won’t return.

                  So that leaves default.

                  1. Higher state retirement age, with the excuse we are living longer, instead of the truth, we spent your contributions. Since the poor don’t live as long as the rich, its screws the poor disproportionately.

                  2. Means test the state pension. Pretty obvious when the raise it to 140 (the level of the MIG, so those below get nowt), paid for by people still working (no state second pension)

                  3. More cuts to the civil service pension. Also rises in ‘contributions’ to screw the young.

                  4. Then you will also get real cuts. The 30% over spend will be dealt with by 30% cuts to salaries, across the board.

                  5. The gilt (borrowing problem). QE money will be written off. That still leaves 750 bn on the debts.

                  6. Breaking the link with inflation for pensions. That means they can default by printing. With the link they can’t.

                  e.g It goes all Greek. All taxation, no services. The reason why the Greeks aren’t paying taxes.

                  In the UK, and in France, I predict violence. Deprived of a Giro, and companies the target for the tax man irrespective of profits, why set up here? For example, Starbucks being the target on grounds of turnover, when corporation tax is on profits. The accusations are they aren’t paying taxes on turnover. Sends the message doesn’t it? You’re not welcome here, because you are scum.

        • TomTOm

          Hazard rate models – do tell me your take on these, I find City types are fascinated by the theory and poor at the practice… many Nobel Prize Winners did LTCM employ ?

  • LB

    Northern Rock – Retail bank. Nice traditional mortgage lender.
    Bradford and Bingley – Ditto
    Catholic Building Society – Building society
    Alliance & Leicester – Retail bank
    Derbyshire Building Society
    Cheshire Building Society
    Barnsley Building Society
    Scarborough Building Society
    Dunfermline Building Society
    Chesham Building Society
    Royal Bank of Scotland Group
    Lloyds TSB

    Ho hum, all look like retail banks. All got into problems because customer’s didn’t pay back their loans.

    So maybe the fence is a good idea, since it will protect the investment bankers from the folly of retail bankers.

    • TomTom

      Northern Rock – Retail bank. Nice traditional mortgage lender……….BULLSHIT. This was the Master Securitisation Machine Par Excellence issuing CMOs through Granite. You know zilch about Northern Rock. You have NO idea about Securitisation and CMOs as Synthetic Treasuries. You seem oblivious to the global financial system. You write utter drivel – do you know what DERIVATIVES are – every one of those Banks was on one end or the other of DERIVATIVES

      • TomTom
      • LB

        The problem at Northern Rock was a lack of securitisation.

        Most banks fund from depositors, and then lend out. Capital is their buffer.

        NR had a small depositor base, but large loans, and funded in the interbank market, with some securitisation.

        Now if they had securitised all their interbank loans, they wouldn’t have been hit at all by the lack of interbank funding.

        I’ve a bit more knowledge than you I’m afraid.

        For example, do you know that the state pension is a DERIVATIVE, and that its all hidden off the books?

        Did you know that the state has made a profit on the bank bailout at the customer’s expense?

        • TomTom

          As a Lloyds shareholder I certainly know i have made NEGATIVE gain on bank bailouts and rescuing HBOS……….I doubt you have more knowledge than myself, very much doubt it. Northern Rock was FORCED to securitise because of the Constitution at Granite – it needed to keep a flow of Bonds or it would unravel which is why it needed recourse to interbank markets

          • LB

            I’m a Lloyds shareholder too. That must make me an expert – not.

            Back to NR.

            Northern rock should have operated in this way.

            1. Lend mortgage money.

            2. After the mortgages have seasoned (look it up if you want to know what that means), bundled them, securitised them off, earned a fee for

            managing the mortgages.

            1. Only make sure that the amount of mortgages you have on your book is covered by your deposit base, because then you are unlikely to be hit by a liquidity issue.

            2. Securitised the rest.

            So if the market tanks, the SPV gets the payments as they are made, and NR is liquid at all times.

            NR didn’t do this. It exposed itself to a liquidity crisis by using the interbank market for funding mortgages.

            Using a SPV matches mortgage term against borrowing term because NR isn’t exposed to interest rates, or repayment rates, or default on the mortgage.

            Securitisation was the solution, but they didn’t take it.

            • dalai guevara

              It’s all a question of ratios. Once your LTD ratio is greater than 30, and the market fluctuates by 5%, what happens?

    • HooksLaw

      Northern Rock for one did not get in trouble because its customers did not pay back their loans. It got in trouble because it borrowed short and lent long. It got in trouble because it dabbled in buying up ‘special vehicles’ in the wholesale credit market.

      HBOS RBS are more than retail banks. Lloyds TSB got into trouble after Brown fooled it into merging with HBOS.

      Quite how Gordon Brown managed to miss all these disasters, such as the Derbyshire’s and the Dunfirmline’s forays into sub-prime lending, taking place under his nose is another story.

      • LB

        Borrow short, lend long. All banks will do that. Almost all banks bar those above didn’t get into a mess. So how is borrow short, lend long an issue when the other banks didn’t have problems?

        With NR, it was a lack of securitisation, or a lack of real depositors, that screwed them up. More SPVs would have meant they didn’t get in to a mess.

        So B&B? Nice retail bank there. Along with the Building societies. No doubt brought down by derivatives or casino banking. Ho hum. Nothing like a bit of revisionism to create a scapegoat.

        So for TomTom.

        1. How big are the government debts? All of them
        2. For the banks, how much has the government made in profits from the banks over the crisis.
        3. How much tax have the banks paid since 2008? Government profit again.
        4. How much has the government paid out (Not loaned) in compensation?
        5. How much have the banks paid out in compensation from the scheme that they fund?

        [We wouldn’t want to confuse something paid for by the banks with the generosity of the state would we?}

        6. How much has Gordon Brown’s share trading in banks made or lost?

        Then we can see the true scale of the problems, and whose responsible.

        • TomTom

          Bradford & Bingley securitised its Mortgage Book through AIRE VALLEY MASTER PARTNERSHIP and SIV. It was buying BTL Mortgages from GMAC which was offloading its BTL Book and funnily enough it had issued BTL Mortgages as Self-Certified but B&B was committed by Christopher Rodriguez (ex McKinsey, Thomas Cook) to buy further tranches after hhe moved on to Visa in San Fran. You might be amused to know that B&B Internal Control System was abysmal. As for Gordon Brown he wiped out 90% capital held by Lloyds Shareholders and the Prospectuses for HBOS and Lloyds TSB OMITTED the £60 BILLION prop from the Bank of England in March 2008 which was repaid by Lloyds in September 2008 without Shareholders being aware. As for your point (1) – IRRELEVANT….it is number of infinite magnitude depending upon which imputed Interest Rate you want to put on Debt Rollup. IOnce yields go NEGATIVE it could fall. On the other hand with BOND PRICES being at a 300 YEAR HIGH the whole National Debt might disappear in a Bond Market Collapse

          • LB

            National Debt might disappear in a Bond Market Collapse


            Apart from the 4,7 trillion pensions debt, 0.4 trillion PFI, 0.1 nuclear decomissioning (how do you make those disappear?)

        • TomTom
      • TomTom