Oh dear! The Vickers review on banking reform hasn't been published yet, and the news is full of people taking positions and what it might or might not recommend. I have a lot of sympathy with our Prime Minister, who wants the blessed thing to be published before we have a row about it. What to make of it?
The reporting is a bit confusing. The Independent has hyped the thing up to be a war between the Vince Cable and George Osborne, not so much about the proposed reforms, but how quickly they will be implemented. Meanwhile somebody has briefed the FT that Cable has pretty much given way on timing so there is no real row at all.
The proximate cause of this flurry is a lobbying campaign by the banks. This campaign will do nothing to redress their general aura of incompetence. They are basically saying the reforms should be kicked into the long grass because they will interfere with their lending to British businesses, which is critical if business investment is going pull us out of the economic doldrums, as most people hope. There is some merit in this, because some of the reforms (on capital requirements and liquidity) could have just that effect. But the ineptitude of their stance is staggering.
Politics is built on simple messages, and the banks are offering the Liberal Democrats a very tempting proposition. This is a wonderful opportunity for them to show what they are doing in government by showing that they are resisting pressure from the banks. As the banks themselves continue to insist on paying large bonuses for reckless trading activities, this is a popular stand. Ed Miliband and Labour have not been slow to take up the anti-banker sentiment. The Tories, meanwhile, don't seem to know what's hit them, and none of their side are sticking their necks out on the banks' behalf. Meanwhile John Cridland, the CBI director general, has weighed in on the banks' behalf calling a rapid implementation of the reforms "barking mad". It is difficult to understand what he thought he was doing; the CBI's credibility has been badly damaged as a result.
There may not even have been much of a row in the coalition in the first place. There is consensus on the general thrust of the reforms; no doubt Vince Cable was quite flexible on the timings of some aspects, provided others proceed fairly quickly. Now it is important to him and the Lib Dem part of the coalition that they are seen to get results. A public row makes things worse for the banks. If ever there was a time for quiet lobbying based on dry details, this was it. Using the megaphone is totally counterproductive.
Not that I have much sympathy with the banks. They are making too much money, and any sensible reform would reduce their profits, both by taking away the implicit government subsidy and by increasing competition. It's bound to hurt. If the banks want to take some of their activities, and even their HQs, elsewhere, then so be it. I'm not actually sure where they would go though. Switzerland has dramatically increased its capital requirements for banks, and the stratospheric Swiss franc doesn't make operating there cheap. If they don't have the implicit backing of a big government then their business model breaks down anyway - ruling out places like Ireland and Bermuda. Going into the Eurozone when its own banking system is under incredible stress hardly looks a good idea either. In America they have a habit of sending bankers to prison.
The central reform is to separate banks' trading activities from their "ordinary" ones of taking deposits and lending to the public and non-financial businesses. This was quite contentious in the commentariat when it was first mooted a year or so ago. But there seems to be a much greater consensus behind it now. Who would have guessed it? A lot of people assumed the bankers would get away with it while politicians tried to make up their minds, and the disaster of 2007/08 faded into the memory. Not so. The banks' inept PR machinery can take some of the credit.