They have been hailed as the worst corporate results in the history of the UK. At its dizziest height just a year ago, RBS/NatWest reported pre-tax profits for 2007 of £10.3bn. Lloyds TSB made £3.71bn and HBoS £5.5bn over the same period. How the mighty have fallen.
At the end of last week, RBS announced an annual loss of a staggering £24bn, followed by Friday’s report from the combined Lloyds Banking Group that HBoS was on the ropes for £10.8bn. Whether you are a shareholder, pensioner, an employee in the financial services sector or taxpayer (and hence part owner of these banks) – which covers off pretty much every adult in the UK except students – the effects of this financial meltdown will inevitably reverberate for many years to come.
And this is the ‘real’ economy we are talking about – as opposed to the make-believe bubble which the banks appear to have inhabited for some years.
The Government’s latest rescue wheeze is to inject another £20bn of our money into RBS. With its market capitalisation of £9bn (of which we owned 70%), the latest injection gives the Government a stake of over 90%. If that’s not a nationalised bank, I don’t know what is. Why can’t we have some clarity on the matter? If something looks like a duck and quacks like a duck, it’s a duck. What is the Government afraid of? A run on RBS? Surely not, as a nationalised bank is the safest place for people to keep their money, as it’s guaranteed by the Government.
I do not mean for this column to be a weekly slot for kicking the Government – it is just that there is such a lot to kick them for. Adair Turner, the generally well-regarded chairman of the FSA, has now accused the Government, as well as the financial services industry itself, of calling for the ‘light-touch’ regulation which many now hold partly to blame for the crisis. He used interestingly colourful language when outlining tougher rules for banks and hedge funds last week, promising to quell the ‘animal spirits’ of bankers and promising a regulatory ‘revolution’.
Once he has finished putting bromide in the bankers’ tea, I wonder what the revolution will look like? Surely, what we need is a regulator that looks more broadly at what banks actually do, rather than trying to micro-manage how they do it. And the last thing we need is heavy-handed regulation that stifles the legitimate economic activity that we will need to get us out of this recession.
Actually, the last thing we need could well be a Europe-wide regulator. A group led by Jacques de Larosière, the Chairman of the Strategic Committee of the French Treasury, has called for a European Systemic Risk Council, which would bring together the heads of all European central banks, the European Central Bank and EU officials to coordinate the supervision of systemic risks to overall financial stability.
De Larosiere says they are not calling for a single European regulator to oversee individual financial firms, but will lay out a step-by-step plan to develop existing EU-level bodies into a European Banking Authority, Insurance Authority and Securities Authority. Isn’t that just calling for three Europe-wide regulators? If it looks like a duck and quacks like a duck…
