Mr Hester told MPs that the size of the bank didn’t matter, it was the size of the risks banks took Bit of a scrap
Mr Hester told MPs that the size of the bank didn’t matter, it was the size of the risks banks took The bosses of Britain’s biggest banks are often viewed as hunting in a pack, of showing too many of the characteristics of a cosy cartel.
Not today, in front of the Treasury Select Committee.
On the proposal from the Independent Commission on Banking, that was set up by the government, for giant banks to put in place internal firewalls separating investment banking from retail banking, Stephen Hester, the chief executive of Royal Bank of Scotland, said he feared that could actually increase the riskiness of the banking system and put up costs for banks and their customers (you and me, as if you didn’t know).
By contrast, the chairman of HSBC, Doug Flint, said this so-called ring-fencing was required. And he submitted a proposal for making such a reform work – which would be to use current accounting conventions to put all trading activities into one part of the bank, and all lending into a protected separate subsidiary.
Then there was the contentious question of the value to the mega banks of the implicit guarantee from taxpayers that they will be bailed out in a crisis.
This allows banks to borrow more cheaply than would otherwise be the case.
Lloyds’ new boss, Antonio Horta-Orsoria, said these cheaper funds could be of benefit to big banks’ investment banking operations.
But Barclays chief executive, Bob Diamond, denied this was so for his investment bank, which is one of the world’s largest.
As for Mr Hester, he conceded that there could be “leakage” from this taxpayer subsidy into bonuses paid to bankers – which some will see as a statement of the obvious, and some will see as a scandal.
Was there nothing that united the banking quartet?
Well, none of them are prepared to quantify the size of the taxpayer subsidy (which the Commission puts at more than £10bn a year, and the Bank of England believes to be nearer to £30bn).
And they all think it would be completely brilliant if effective procedures could be put in place which could eliminate this subsidy, by allowing their businesses to go bust like any other company that mucks up.
Yes, some will see those who run our biggest banks as turkeys who desperately want Christmas to come as soon as possible.
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