After the 2008 financial crisis, the banking industry initially acted like a cartoon character who shoots over a cliff-edge at high speed and keeps going for a while before falling. Five years on, they are lying on the ground – and will never be allowed to return to their fast-paced ways.
Good morning and welcome to our rolling coverage of the long-awaited report from Sir John Vickers on UK banking reform.
You can find the text of the official report at the Vickers site.
Megan Murphy (MM), the FT’s investment banking correspondent, will guide us through the report.
12:00, MM: Sir John Vickers is calling a wrap on the press conference now, on the dot of midday.
A very interesting 90 minutes, with a strong defence of the commission’s work and what it is trying to achieve not only from Sir John, but most notably from the FT’s Martin Wolf and Bill Winters, the former co-head of investment banking at JPMorgan.
The banking industry may be taken aback by the tone of some of their commentary, as well as their conviction that ring-fencing is the best solution for removing the implicit taxpayer subsidy of universal groups, regardless of the direction taken by regulators/governments in other countries. That concludes the live blog for now, but we’ll be keeping an eye on developments and will post again later on anything new.
The Basel III deal imposing higher capital standards on banks is an improvement on the existing rules but it does have a quality of déjà vu.
The FT expresses the main new rule thus:
The package, known as Basel III, sets a new key capital ratio of 4.5 per cent, more than double the current 2 per cent level, plus a new buffer of a further 2.5 per cent. Banks whose capital falls within the buffer zone will face restrictions on paying dividends and discretionary bonuses, so the rule sets an effective floor of 7 per cent.
It sounds good but is awfully reminiscent of the original Basel accord, which established the 4 percent minimum level of tier 1 capital in 1988. This time, the numerator is not tier 1 capital but “core tier 1 capital” – a narrower version of the same thing.