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The banks will win the argument and stay big

Banks have won most of the recent battles with the world's governments and regulators. All the signs are they will emerge victorious on the row about how large banks should be.

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by Deborah Hyde on Aug 06, 2010 at 00:01

The banks will win the argument and stay big

Banks have won most of the recent battles with the world's governments and regulators. All the signs are they will emerge victorious on the row about how large banks should be.

Turning point

With the banks making profits again and their confidence growing daily it is clear they are ready to defend their right to remain big. It is also increasingly clear the government will not be able to stand in their way.

At the height of the crisis a number of regulators and governments across the world said banks would have to be split to ensure what happened in 2008 could never happen again - but already most countries have ditched those plans.

Here, chancellor George Osborne has also stepped back from his earlier pledge to force big banks to split in two appointing an independent commission to look at the pros and cons of such a move rather than bringing in new legislation now.

Barclays’ chief executive John Varley said yesterday he will be fighting the proposals. He said historical data shows that bigger, more complex banks are not more likely to fail; pointing out it was the smaller banks that failed in the recent European stress tests.

‘The evidence from the last 100 years is clear. By converting broad banks into narrow banks we will make the system less safe not more safe,’ he said, adding the real causes of bank failure is ’inadequate risk management.'

Size hasn't mattered in the past

Like Barclays, Europe’s largest bank HSBC is profitable and wasn’t propped up by the government.

Its chairman Stephen Green recently said the failure of both Northern Rock and Bear Stearns during the crisis shows that banks of different sizes and with different activities were equally vulnerable.

Since the bank's main focus these days is in Asia and could easily close its doors in London, it is unlikely Osborne will want to pick a fight with him.

The real sticking point is Royal Bank of Scotland. There was a bank that clearly failed because it tried to grow too big and is still only limping along despite a huge cash injection from the government.

The problems at RBS were not the fault of chief executive Stephen Hester but the future of the bank rests on his ability to convince the government and the banking commission that there are other remedies that are better designed to prevent crises.

He understands he has to play a clever game but even he seems to have become bolder of late. Let’s face it having the likes of Varley and Green in your corner has got to help.

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12 comments so far. Why not have your say?

Excellent! MRS hyde is right.Whether we like it or not the banks have won and our politicians know it. As they made a lot of pointless noise a few months ago, they do not know how to react ...so strong rhetoric against the bankers to appear in tune with the voters but no action as they are afraid of the bankers' blackmail.

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Completely fed up with hearing Stephen Hester shares no no blame for the demise of RBS. He was on the board when when Sir Fred went one step too far with the purchase of ABN Amro.There was no check from the "great and the good" on the board of RBS when they pursued reckless expansion. Also where was the Bank of England and Mervyn King....asleep at the helm. The result is a lot of RBS employees and shareholders suffer.

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Hopefully some politicians will read your excellent article on banks particularly Vince Cable about his continious noise on big banks need dividing. All their present rhetorics on banks are only for public consumption and playing politics knowing fully well that they can do now't. As Barclays Varley said the country need the banks and not the other way round. No doubt one or two condem politician will still spout more nonsense to satisfy the voters apetite for bashing the bankers.

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No surprise here, splitting big banks up is just rhetoric from the media......The "government" paid LloydsTSB to takeover HBOS and sold Bradford & Bingley to Santander, and where will Northern Rock end up?

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All very well the big banks saying size doesn't matter, and I agree it was the risk management and regulatory oversite that was at fault. But you cannot say that the big banks survived because they didn't have a problem. They only survived because the taxpayer bailed out some of the banks. If those banks hadn't been bailed out the domino effect woulfd have taken them all down.

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Spot on! The Govt are beginning to realise that if they don't take their head out of you know where there will not be a banking industry left in the country. Barclays, Standard Chartered and HSBC are already mulling moving abroad and why not given that Vince is hell-bent on destroying the only industry capable of keeping team GB in the black just as they did before the crash- contributiing billions to the Govt coffers so that they could keep fuelling the bloated public sector with junk food. Vince's ideas are about as clever as Arthur's for the mining industry and Red Robbo for the car sector. Maybe Ozzy has dusted down his 70's history books and taken the time to read what happened then. We all know that smart Etonians receive their education during their holidays maybe Ozzy is boning up now- for all our sakes lets hope so. We must not forget that we lent money to the banks. If we don't mess it up we will be repayed handsomely for years to come. If Vince gets his way I would be surprised if we end up with some Russian philantropist owning some of the banks that have not fled our shores.

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The banks will allways win every argument with the government, because those who negotiate with them are hoping for a seat on their boards, when they are out of government. Elementary my dear Watson

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Stephen Hester was absolutely not on the board when Fred Goodwin was ceo. He was ceo of brit land and "headhunted" with specific govt approval to take over as someone with no contagion with the prior regime. Check your facts before you get absolutely fed up in future.

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Tim's absolutely right, Hester's good man who will restore the fortunes of RBS and the shareholders who have bought in at or around the 40p mark I guess you are not one of those Anonymous 1 but hey not too late to average down.

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He who yields the money rules the world - this is the old/new world

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Agree most of this. Some sense at last! Some of the banks made mistakes but they were appallingly treated and abused by Govt. Tim Congdon who is well informed in this area states clearly the banks did not need to be bailed out in the way they were with shareholders ripped off. The banks understood they would be able to borrow from the B of E in a liquidity crisis and if loans had been made or guarantees given in this way there would have been no crisis for the banks - their problem was a liquidity one - they were not bust. No bank can, or probably ever will be able to, repay all depositors on demand when panic sets in.

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joe stalin

Aug 09, 2010 at 09:45

The banking crisis was caused by the BBC

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