The Independent Commission on Banking is now dead in the water.  The Coalition are going to let the industry roll the dice one more time. Vince Cable has been forced to “concede that banking reform will not happen until after the next general election”.

The lobby against the ICB has been based on both the “expensiveness of available long term capital” and, as articulated in the Telegraph yesterday, that there is enough regulation.

That the argument on capital is specious has already been exposed by academics.  But for more practical people, surely Warren Buffet’s $5 billion investment in Bank of America last week gives the lie to the first argument?

And FT’s Alphaville exposed the lie in the second argument when it highlighted a comment in a report on bankers’ preparation for extreme events, by Paul Fisher at the Bank of England:

“Some banks have told us that they think they should not be required to hold capital and liquidity to deal with such extreme tail events [such as economic slowdowns] – leaving the public sector to be the capital provider of last resort.”

The banks not only haven’t changed, they’re quite happy to blatantly tell their future regulator to prepare for the next public bailout.  The industry has always had a close and candid relationship with the “Old Lady”, but still, the cynicism in this comment is shocking.

This failure of regulatory change in the face of fierce banker resistance is not without precedent.  The Swiss regulator proposed tough regulatory changes in July 2008, which were roundly criticised by the industry and failed to get political support.  The Vice Chairman of the Swiss regulator has commented that:

“At that time our proposals seemed quite radical and were opposed by both banks, to varying degrees but chiefly using the standard argument of disadvantages in global competition.”

Unsurprisingly, the Swiss political debate turned 180 degrees as the global financial system collapsed 2 months later.  As a result the Swiss passed new banking regulations in November 2008, that insisted Swiss banks had capital at 19% Tier 1 ratio, a level that the Bank of England believes is enough to immunise the public sector; unfortunately the ICB is insisting on only half that level.

If the ICB is now pointless, then its rules and the industry’s unchanged attitudes make a new public bailout inevitable.  At that time we can try again for better regulation.

In the meantime, not all is lost. We can make sure there is one less bank to nationalise next time round by re-mutualising Northern Rock.

To support the campaign to re-mutualise Northern Rock, sign our petition at