I was reining myself too much when I wrote this. Or rather, I just wasn’t going far enough. On reflection, two or three more bullet points from the malodorous Treasury press release are worthy of comment, and there’s some extra context to add.
First, the purported object of Project Merlin was to achieve a new understanding between banks and government after the 2008 crash, the 2008-9 bailouts, and the 2009-2010 bonus rows. A Magna Carta-like settlement of rights and responsibilities, perhaps. So you’d think there’d be some public undertaking by the banks, promising never to screw up so mightily again: not to drift stupidly into massive dependence on market-based funding, perhaps, or simply, to manage credit risk better; or not to incentivize risk taking via heads-I win-tails-you-lose bonuses; or not to award performance-unrelated bonuses immediately after massive infusions of taxpayer support.
Oddly, none of that is in the Treasury press release; in fact, the only undertaking offered about “not screwing up again” is this:
not repeating in 2011 the one-off bonus tax announced in Budget 2009.
That’s right – the “mea culpa” on offer, implicitly, is by the government, on behalf of the previous government, which had at least tried to do something to stem the conversion of implicit and explicit taxpayer support into bankster loot. The only thing to admire about this bit of cravenness is its acrobatic combination of grovelling and fingerpointing. That’s unmistakably the handiwork of George Osborne, right there. If you look at the banks’ version of the Merlin Agreement, the banks actually give up a tiny bit more on the bonus side than the Treasury cares to mention; see 3.2; but if it was contrition you were looking for, forget it.
The other bullet points I wanted to revisit are these two:
- promoting a strong and proportionate regulatory system, securing international agreement where appropriate;
- implementing and applying European and international rules to create a level playing field in both policy and practice whilst protecting and maintaining the particular strength of UK financial services, and without pre-judging the outcome of the Independent Commission on Banking (IBC).
Well, I interpret “strong and proportionate regulatory system” as “not breaking up any more UK banks”; and “implementing and applying European and international rules” as “just sticking to whatever comes out of Basel III and not doing anything more radical”. “International agreement” is pabulum: it just means “not frightening foreign banks away by regulating heavily”. Then “without pre-judging the outcome of the Independent Commission on Banking (IBC)”, which will indeed be considering more radical reforms, is just an attempt by the Treasury to pretend they didn’t just say what they just said. If you look at the banks’ version of the Merlin Agreement none of these regulatory policy points are mentioned at all.
So the rather contorted additional promises in the Treasury press release might be unsolicited giveaways by the Treasury, or the fruit of last-minute off-the-record discussions between the Treasury and banks, or sheer ineptitude. Whatever, banks (or is it mostly just Barclays?) are parading their political strength; that is really the point of Merlin.
In the mean time, the elected politicians are in a bind. The contortion in the Press release reflects Osborne’s dilemma: per my Wednesday post, he is trying to face two ways at once:
So I think Osborne is in a pickle now. If he wishes to clear the way for acceptance of minimal bank reform, as damp a squib as this miserable, cosy “Project Merlin”, he will have to make sure the Independent Banking Commission report by Vickers is as feeble as possible, then push his way past King, head of the independent Bank of England, and then chew his way through the rest of the BoE hierarchy. I don’t think he is brave enough or well-enough backed for that.
But a more direct attack on radical regulators is underway too. Earlier in the week Yves & I discussed the NYT piece on Mervyn King. For the well-connected anonymous blogger London Banker, the appearance of that article is already enough to flag up a whisper campaign; and he is confident as we are that King’s line on banking reform is the cause of the animosity:
Since little appears in the American Pravda by chance, one wonders what and whose agenda is served by such a one-sided and un-journalistic attack on a Governor who has done pretty well in preserving Britain’s financial sector, economy and currency when basket cases surround Britain on all sides (westwards not excepted). No one quoted as critical of Mr King in the hatchet piece is a working banker, I note.
…if you aren’t fluent in British innuendo, what LB means is – the bankers are behind it. LB goes on:
This little propaganda reminded me that I wanted to blog one of Mr King’s bravest speeches. Perhaps bringing what he said to light will help to explain the animosity of those behind the whisper campaign.
Go and read London Banker’s piece, which includes a long excerpt of King’s speech.
In the mean time, another sighting vindicates London Banker’s conclusion – according to the Daily Mail, there is definitely plenty of anti-regulator whispering going on; and someone in Whitehall (a Lib Dem?) isn’t too delighted with that Treasury press release on Merlin:
The long-awaited Project Merlin deal will not eclipse the wide-ranging probe into the industry conducted by the Independent Banking Commission, Whitehall sources told the Mail.
The IBC is currently considering whether to recommend a breakup of the banks to increase competition, which has been vastly diminished in the wake of the financial crisis.
Many bankers had hoped that the armistice deal would effectively pull the rug from beneath the Commission with a pledge to increase new lending to business to £190billion this year.
But a high level government source said bank bosses have been told that the Merlin pact will not ‘prejudice’ any of the investigation’s findings, including a possible dismantling of the sector.
According to the source, the bosses of Britain’s main High Street lenders had been ‘busy trying to undermine the Commission’ during last month’s World Economic Forum in Swiss ski resort Davos.
Naturally, we’ll be on the lookout for more whispers.