Are Europe’s banks undercapitalised institutions that need rescuing – or over-profitable operations that can be milked? The European Union, like Britain’s government, really must make up its mind before imposing penalties on the banks.
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No-one wants the past system of banking, but do we want the one Sir John Vickers is proposing next? The words ‘horse’, ‘bolting’ and ‘stable door’ spring to mind.
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Is banking reform a necessity or a luxury? When Sir John Vickers was asked to review the UK banking industry it was part of the sector’s punishment, but now it looks as if he will be adding to the problem rather than solving it.
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The old arrangement was that banks paid investors to deposit cash. Now investors from Switzerland to the United States – and that means from the strongest of currencies to the weak – are having to pay the banks to look after their money. The most liquid of assets has become a liability.
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So farewell Egg – born in the dotcom boom and killed by the credit crunch. The internet bank has been bought by an old-fashioned building society and will be wound down, its silly name allowed to wither.
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European banks need 2.5bn euros of new capital according to the latest stress tests. Make that E250bn, says the leading credit rating agency. And if the banks can’t raise the equity they can’t give loans.
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Perhaps the reason Glencore International (LON:GLEN) has been such a flop since its flotation is that there were so few investment banks free to tell investors that the record share issue was overpriced. With 26 international banks tied up as advisers to the commodities company, who could give independent advice?
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If Lehman Brothers had had a ringfenced retail bank do you think the public would have slept happily while the investment banking side crashed? No. Savers would have queued round the block to get their money out, just as they had at Northern Rock a year earlier.
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Christine Lagarde should not become managing director of the International Monetary Fund because she is European – but she must not be rejected for the same reason.
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Perhaps Vince Cable is talking to the electorate when he complains again about bank lending to business. He doesn’t seem to be talking to companies and the banks have given up listening.
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