New rules will split the cuddly savings bits of banks from the madness of investment banking. Sounds good to us but the bankers are squealing. Here’s why.
Well, would you be a banker? OK, so the multi-million pound income sounds dandy: SavingsChampion would buy a little mansion in the country and commute first class to the City. But what about the name calling, banker-bashing and, worst of all, the Vickers rule?
The Vickers rule? If you’ve not heard of it, don’t worry. A lot of people haven’t and even clever bankers are still working out what it means. The rule is part of a new set of regulations that stem from the Independent Commission on Banking’s report delivered by Sir John Vickers last September - hence its name.
If you have nothing better to do, you can read the 360 pages or so of the report here. For SavingsChampions with a life, we’ll give you a quick rundown on the important bit - well, the important bit for your savings.
Like the similarly named Volker rule in the US, the British Vickers version aims to make banking safer - for customers rather than bankers who get called horrid names.
The idea is to split banks between safe, boring parts (savings, current accounts, home and business loans etc.) and the more exciting but risky investment banking side - often called ‘casino banking’.
Some of us might like an occasional flutter – but we use our own money. With the banks, we think the same should apply. We are all for safe and boring when it comes to what the banks do with savers’ hard-earned cash. Sensible Sir John recommends ‘ring-fencing’ the bits of the banks that look after our money from the crazy, adrenaline fueled parts that wheel and deal in complex City instruments. For those bits the banks should use their own money.
We like a good flutter ourselves, but in this instance we are all for safe and boring.
Creating a big financial wall between the two means that savers and borrowers (and taxpayers) don’t cough up billions when the suits screw up everything by betting with our money. After all, it was the risky side that bought down RBS, and other banks worldwide, not you and me withdrawing our savings in a huff.
Talking of huffs, now the bankers are having one. The Government thinks Sir John’s ideas are great, draft regulations come out next month. But some of the bankers whinge that ring-fencing will be unfair. Not to us, it ain’t, so they must be talking about their bonuses or making oodles of cash for shareholders at our expense.
Ring-fencing will cost money. Banks will have to put more of their own cash into protecting retail savers and borrowers with bigger firewalls (pots of cash in case of emergencies), rather than using the money to make bets in the market and/or bigger profits. Doing so may make retail banking less profitable.
Last week, the press was full of reports that HSBC might pull out of UK retail banking if the Vickers rules are too tough. We asked someone at HSBC - one of the country’s biggest savings institutions - for a comment on these reports.
They were quick to let us know that they wanted to reassure customers that HSBC sees the UK as a crucial market, full of opportunities, and it is a key part of its vision for the future.
And this week, in the press, the CEO stated that plans to leave the UK have been postponed indefinitely.
So whilst the draft rules aren’t out, nobody knows how much the Vickers Rule will cost. Yet we are not convinced that the anti-Vickers stance is particularly clever.
After all, there are plenty of savings institutions that don’t have investment bank arms and they still run savings and loans operations that are profitable for customers (savers), owners and members.
The Nationwide, Coventry and Derbyshire building societies pay top Instant Access (Easy Access) rates without needing investment banking arms to make profits for their members. HSBC, Barclays, RBS and other global banks generally offer less than sparkling rates - so it hardly looks as if investment banking profits subsidise our interest rates.
Strangely enough, the building societies are not making a fuss. In fact, the Building Societies Association even ‘welcomed’ the Government’s commitment to ring-fencing and suggested that its own legislation (the Building Societies Act) be updated forthwith.
Now that’s a turn up for the books - asking for new legislation not just moaning about it!