Banking

Faisal Islam has a very interesting report from Davos on how at least one bank no longer believes that a euro from Ireland, say, is worth the same as one from Holland or Germany. He writes that: ‘A leading European bank has begun to account for euros differentially, by nation state. That is to say, they are differentiating a risk to euros that originate in a potentially defaulting country from that of a euro-cert. They, in effect, have invented the concept of a German, Greek and Irish euro. Now we accept that government debts from these nations are different. The idea that a bank treats cash differentially, is an incredible development.

After months of delay, and much hounding by The Spectator's Select Committee Chairman of the Year, Andrew Tyrie, the Financial Services Authority has finally released its report into the wheezing collapse of RBS in 2008. At 452 pages it is a behemoth of a document, and too much for me to have fully digested yet. But a few points stand out at first glance: 1) Don't blame us, blame Gordon. The Tories are making much of the fact that only three politicians are mentioned in the report: Tony Blair, Gordon Brown and, most relevantly, Ed Balls. And they're not mentioned in a particularly flattering context, either. All three are quoted to partially justify the FSA's regulatory approach in the run-up to the RBS debacle.

Tieless, Alistair Darling appeared on Marr this morning to discuss his memoir. As with so many of these New Labour autobiographies, there was the strong whiff of a therapy session. At one point, Darling said "if Gordon is listening to this" before remarking that he still felt a huge amount of "residual loyalty" to him. It is not news that the Brown government was dysfunctional. But it was striking that Darling did not dissent when Marr suggested that under Brown, Labour had – collectively – not been fit to govern.

George Osborne wrote a strident article for the Observer last weekend, in which he called rich tax evaders “leeches”. As James Forsyth reveals in the cover story of this week’s magazine, Osborne is not alone among Tories in hounding the ‘undeserving rich’ at present. James goes on to argue that the Tories are ‘becoming particularly worried’ about the callous rich because the Vickers commission is poised to bring the emotive issue of banks back to the ‘political frontline’. The Vickers report has already irritated the coalition’s sore points, with disagreement allegedly rife between George Osborne and Vince Cable. Today’s FT offers a fresh angle.

Ever since the Elizabethan poor laws — if not before — society has tended to divide the poor into the deserving and the undeserving. But, as I write in this week's magazine, our politicians are now taking aim at a new category, the undeserving rich. Who you consider to be the undeserving rich depends on your ideological leanings. Russian oligarchs or the families of Middle Eastern despots are, perhaps, the most obvious examples. They have acquired huge wealth but often by illegitimate means. Then come those who evade, to use a favourite phrase of both David Cameron and Ed Miliband, "their responsibilities".

A sweeping and utterly typical performance from Vince Cable in his interview with the Times (£) today. Not only does he plunge his teeth into the exposed flesh of the bankers (criticising them for their "special pleading" over banking reforms), but he also offers another overarching diagnosis of the British economy (there won't be a repeat of 2008's financial crisis, he says, in case you were wondering, but slow growth could be a problem). I feel like a spoilsport for pointing out that, only four months ago, the Business Secretary was actually warning that "you can see" another financial crash happening. But aside from Cable's fiery rhetoric, it's worth noting that his demands are now more restrained than they have been.

The headline measure in the Vickers Review—the need for a ring fence between retail and investment banking—should not harm the City’s global competitiveness as it only applies to banks with a UK retail operation. For everyone else, Vickers would leave London as a relatively good place to do business: far more certain than Hong Kong and less restrictive than New York once the new Dodd-Frank regulations are in place. In Conservatives circles tonight, there is a quiet confidence that the government will be able to accept the Vickers Review in full when it reports in the autumn.

The recession has made Britain's banks less competitive and they should be broken up, concludes the Treasury Select Committee. As the banking system spiralled towards oblivion in 2008, the market became more concentrated. ‘The financial crisis has resulted in significant consolidation of the UK retail market. Well known firms such as HBOS, Alliance & Leicester and Bradford and Bingley have either exited the market or merged with rival firms. A large number of building societies have merged, undermining the diversity of provision in the sector. Whilst these ‘rescues’ were necessary in order to preserve financial stability, the consequence has been to reduce competition and choice in the market.

To be sure, there was some good stuff in the budget, and I probably feel more positive about it than I expected to. The additional 1 percent cut in corporation tax, above and beyond what had already been announced, was perhaps the high point, although it will be the 1p cut in fuel duty (replacing a planned 5p rise) that draws the most favourable headlines. The rise in the personal allowance, meanwhile, is something the Adam Smith Institute has advocated for a (very) long time. Still, there were, as always, downsides. The goal to make UK corporation tax the most competitive in the G7 is a laudable one, and the Chancellor should be saluted for it. But as welcome as the corporation tax cuts are, they are only one part of the picture.