It's been a hard week to make a choice because there are so many candidates.
First up we had the 2009 Nobel Peace Prize winner, a Mr Obama, who hosted a dinner with the President of China, a Mr Hu Jintao. That has a certain irony because Mr Jintao's government is currently holding the 2010 Nobel Peace Prize winner in prison.
Also in the running were various Labour peers who were trying to gerrymander the division of electoral boundaries, not that they had any point of principle or any purpose other than to keep their pals in the lower house employed. Not that they were that wedded to the idea of electoral democracy anyway, preferring to have a House of Lords that was no more than 40% elected. After all, after a lifetime sitting in Westminster as MP for a cushy northern seat, campaigning if at all on the politics of envy rather than real policies, should a member of the House of Lords put them selves to the trouble of more campaigning (as they do in just about every other second chamber in the free world)?
But I think this week's award (and probably the only one for some time goes to the bankers (or heads of banks) who have been trying to put their views against John Vickers proposals for a split banking system. I have always said that I would go for a Glass-Steagall type system separating investment banks from commercial banks, but Sir John has spoken about a slightly watered down version. Banking groups would be allowed to undertake investment banking activities and retail banking activities in separate companies within the group, but crucially government support would be limited to the retail deposit taking activities. He hasn't given the full details, but the only logical conclusion is that the investment bank part of the group could only be funded on an arms length basis, counting as a 100% risk weighted exposure and subject to the usual; single counterparty risk limits that would apply to any other financial institution.
"Woe, woe", cry the banks, "This will make the UK a less attractive place for foreign banks and the City of London will lose out". Not at all. The UK government doesn't guarantee the deposits of the UK branches of foreign incorporated banks and 99% of them don't take any retail deposits anyway, so they are unaffected.
"Oh, well in that case, combining investment banking and retail banking diversifies the risk in the business", which of course is pure cock & bull. Risk diversification is a myth believed only by stockbrokers and builders of diversified conglomerates, and it doesn't even apply in this case. First of all the risks are not independent (a fast and loose investment banking system would find its losses more volatile than but correlated to those of a retail bank), and secondly the government is only looking at the downside not the overall return(which is the supposed point of diversification).
But most importantly, the bank chairmen fear losing the ability to fund their trading activities from retail and wholesale deposits. Just as I would rejoice that my taxes will no longer back their cheap funding, they are horrified that their traders will have to up their game to compete with all the non-bank traders. Which of course they won't because hey are fat and lazy and used to their tax payer backed funding subsidy, which hopefully, is going away.
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