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Response: Vickers Commission a promising start, but fails acid-test, say nef and Compass

Independent think-tank nef (the new economics foundation) and pressure group Compass have welcomed the Independent Commission on Banking’s Interim Report, but warn that unless the Commission is able to consider more serious structural reforms, further bank failure is inevitable with potentially devastating consequences for the economy.

  • The reforms set out by Vickers fail the acid-test, they are not sufficient to prevent further collapse. Radical reform is not optional, it is necessary. Installing a firewall between retail and investment banking is welcome, but banks must be broken up to a size where their failure doesn’t threaten the rest of the economy.
  • Investment banks are ‘too big to fail’: leaving the investment banks untouched leaves the taxpayer dangerously exposed.
  • Forcing Lloyds to divest branches is welcome, but the Commission must come up with proposals for a truly diverse banking system, with a range of players including mutuals and co-operatives, rather than simply managing competition between a few, very big banks. Unless this happens, banks will not be able to lend to Britain’s small businesses valiantly keeping the economy afloat
  • The Vickers Commission must be protected from the powerful finance lobby and given the freedom to do its job otherwise its proposals will be too weak, making another financial crisis inevitable.

Tony Greenham, Head of Finance and Business at nef said: ““The commission must continue to focus on the simple truth that our banks have become a danger to our prosperity. The UK has a banking system that remains dominated by a few giant, uncompetitive banks that consistently favour short-term gains from financial speculation over patient support of the real economy and delivering high customer services. The banks are structurally incapable of supporting economic recovery and job creation. Radical reform is not optional; it is absolutely vital for the reinvigoration of the UK economy. Installing a firewall is like putting a curtain around a nuclear reactor, where safety is concerned there are some circumstances where complete separation is the only option.”

Neal Lawson, Chair of Compass said: “At the moment banks are too big, too powerful and behave too recklessly because they know they are thought to be too big to be allowed to fail. Nothing short of cutting these banks down to size can prevent another catastrophic economic collapse. Today’s recommendations fail this acid test.”

While the Chancellor has welcomed the Commission’s report, the real test will be whether the Government has the will to implement the proposals.

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