The banking crisis, seven years on: how much has changed?

The Titanic

This time seven years ago, Fred Goodwin - still a Sir - had just lost his job running Royal Bank of Scotland.

The Edinburgh-based bank was bailed out by taxpayers, alongside Lloyds TSB and the collapsing HBOS. Barclays was in the throes of raising billions pounds in the Middle East to avoid the same fate. Events seemed to raise questions about the future of capitalism - let alone banking.

Scroll on to October 2015 and it you would be forgiven for thinking the banking crisis had never happened. The government is talking about selling off its last few shares in Lloyds to the public at a discount to foster a new-found love for capitalism; Barclays is poised to name as its new boss Jes Staley, an American with an investment banking background who is expected to throw caution to the wind and wade back into the riskiest parts of banking. (The government’s stake in RBS, though, is proving hard to shift.)

Many of the rules intended to crack down on the industry are being rolled back. Clamour to make top bankers responsible for their mistakes after the Libor-rigging scandal led to legislation only two years ago that would reverse the burden of proof on bank bosses - they would have to show they had done the right thing, rather than regulators prove they broke the rules. This week George Osborne did a U-turn and put the onus back on regulators.

Requirements for banks to ringfence their high street operations from their riskier casino operations - put in place to avoid a repeat of the 2008 bailouts - are also being tweaked to offer concessions to the biggest players. The ringfenced banks will be able to pay dividends to their parent company, which helps the economics of keeping the two operations stack up.

Osborne has also rowed back on taxation, rewriting the bank levy he invented in 2010. This is another U-turn regarded as helping the biggest players – particularly HSBC, which has been threatening to move its headquarters out of the UK. Osborne will now be hoping such a move is unlikely. His appeasement has not gone unnoticed. Stuart Gulliver, the boss of HSBC, told Reuters on Friday: “Some of the stuff since the election clearly indicates a change towards the City”.

But to campaigners for banking reform, the imminent appointment of Staley is the clearest symbol yet the tide is turning once again in favour of the big banks.

Andrew Simms, author of Eminent Corporations and campaigner for banking reform, has speculated it could be due to the political backdrop - the end of coalition government and the first Tory majority for nearly 20 years.

Robert Jenkins, a former fund manager and one-time policymaker at the Bank of England, has been alert for some time to the way the industry is pushing back on reforms. However, on Staley’s appointment he is sanguine. “Sometimes it takes someone knowledgeable about investment banking to reform it. Knowing the beast means the fellow is less likely to be bamboozled by the investment bankers,” he said.

Customers of high street banks may also wonder if the wind has changed. The Competition and Markets Authority has been looking at how hard it has been to break the stranglehold of the big four despite the bailouts and damaged reputations. The findings of its 18 month investigation are due to be published next week.

Campaigners for banking reform hope it will not be a lost opportunity to inject more competition. It could be the last chance to rein in the big banks.

Powered by article was written by Jill Treanor, for on Friday 16th October 2015 17.09 Europe/ © Guardian News and Media Limited 2010


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