Osborne's ring fence will be made of cheese wire

Power to break up the banks.

So Osborne is going to "reset the banking system". A difficult thing to do with trust between Westminster and the banks at an all time low. How is he going to do it?

Well, first there's going to be a ring-fence: but it's to be not so much electrified as made of cheese wire - if banks don't respect it, regulators will be able to break them up.

It's not just about the fence though - he also plans to make the banking sector more competitive by making it easier to switch bank accounts, and by introducing a new regulator who'll aim to help out new competitors who want to enter the game. There are also talks over how consumer power can be increased, to hold the banks in check.

There is a plus side for the banks: the leverage ratio won't be changed beyond 1:33, but as might be expected, they have not taken kindly to the news:

Anthony Browne, the head of the British Bankers' Association said:

This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses.

"What banks and business need is regulatory certainty so that banks can get on with what they want to do, which is help the economy grow. This decision will damage London’s attractiveness as a global financial centre.

"Uncertainty" isn't really the issue though - banks have been under changing regulation since 2008. The main problem for the banks will now be flexibility, according to Credit Suisse analysts (via FT Alphaville):

Reducing options to transfer capital and funding – As we understand it, banks will be under tight scrutiny to implement strictly a ring-fence. This will clearly limit the flexibility for banks when setting-up their ring-fence plans and limit options to transfer capital and funding. Although this is hard to estimate at this stage, this could increase the overall costs of the reform for the industry. We currently do not have an impact in our estimates.

If ring-fence is to work, it needs to be enforced - but as banks make their money by finding their way around such restrictions, a truly impenetrable fence'll cost. Here is a summary of the estimated hits to the economy via FT Alphaville:

Estimates costs from implementation – The draft legislation published in October 2012 highlighted the following costs for the broader industry and economy: (i) on-going costs of £2-5bn per annum, which compares to our total profit £26.1bn for the five listed UK banks in 2014E; (ii) one-off transitional costs of £1.5-2.5bn; (iii) negative GDP impact of 0.04-0.1%; (iv) reduced tax receipts of £150-400mn (this assumes all bank costs are passed onto the consumer); and (v) a reduction in the value of the government’s shareholdings in RBS and Lloyds Banking Group in the range of £2bn to £5bn relative to a ‘do nothing’ baseline scenario (compares to current value of £45.1bn).

If banks don't respect the fence, regulators will be able to break them up. Photograph: Getty Images
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Leader: Mourning in Manchester

Yet another attack shows we are going to have to get to used to the idea that our liberalism and our freedoms can only be preserved by a strong state.

Children are murdered and maimed by a suicide bomber as they are leaving a pop concert in Manchester. As a consequence, the government raises the terror threat to “critical”, which implies that another attack is imminent, and the army is sent out on to the streets of our cities in an attempt to reassure and encourage all good citizens to carry on as normal. The general election campaign is suspended. Islamic State gleefully denounces the murdered and wounded as “crusaders” and “polytheists”.

Meanwhile, the usual questions are asked, as they are after each new Islamist terrorist atrocity. Why do they hate us so much? Have they no conscience or pity or sense of fellow feeling? We hear, too, the same platitudes: there is more that unites us than divides us, and so on. And so we wait for the next attack on innocent civilians, the next assault on the free and open society, the next demonstration that Islamism is the world’s most malignant and dangerous ideology.

The truth of the matter is that the Manchester suicide bomber, Salman Ramadan Abedi, was born and educated in Britain. He was 22 when he chose to end his own life. He had grown up among us: indeed, like the London bombers of 7 July 2005, you could call him, however reluctantly, one of us. The son of Libyan refugees, he supported Manchester United, studied business management at Salford University and worshipped at Didsbury Mosque. Yet he hated this country and its people so viscerally that he was prepared to blow himself up in an attempt to murder and wound as many of his fellow citizens as possible.

The Manchester massacre was an act of nihilism by a wicked man. It was also sadly inevitable. “The bomb was,” writes the Mancunian cultural commentator Stuart Maconie on page 26, “as far as we can guess, an attack on the fans of a young American woman and entertainer, on the frivolousness and foolishness and fun of young girlhood, on lipstick and dressing up and dancing, on ‘boyfs’ and ‘bezzies’ and all the other freedoms that so enrage the fanatics and contradict their idiot dogmas. Hatred of women is a smouldering core of their wider, deeper loathing for us. But to single out children feels like a new low of wickedness.”

We understand the geopolitical context for the atrocity. IS is under assault and in retreat in its former strongholds of Mosul and Raqqa. Instead of urging recruits to migrate to the “caliphate”, IS has been urging its sympathisers and operatives in Europe to carry out attacks in their countries of residence. As our contributing writer and terrorism expert, Shiraz Maher, explains on page 22, these attacks are considered to be acts of revenge by the foot soldiers and fellow-travellers of the caliphate. There have been Western interventions in Muslim lands and so, in their view, all civilians in Western countries are legitimate targets for retaliatory violence.

An ever-present threat of terrorism is the new reality of our lives in Europe. If these zealots can murder children at an Ariana Grande concert in Manchester, there is no action that they would not consider unconscionable. And in this country there are many thousands – perhaps even tens of thousands – who are in thrall to Islamist ideology. “Terror makes the new future possible,” the American Don DeLillo wrote in his novel Mao II, long before the al-Qaeda attacks of 11 September 2001. The main work of terrorists “involves mid-air explosions and crumbled buildings. This is the new tragic narrative.”

Immediately after the Paris attacks in November 2015, John Gray reminded us in these pages of how “peaceful coexistence is not the default condition of modern humankind”. We are going to have to get used to the idea that our liberalism and our freedoms can only be preserved by a strong state. “The progressive narrative in which freedom is advancing throughout the world has left liberal societies unaware of their fragility,” John Gray wrote. Liberals may not like it, but a strong state is the precondition of any civilised social order. Certain cherished freedoms may have to be compromised. This is the new tragic narrative.

This article first appeared in the 25 May 2017 issue of the New Statesman, Why Islamic State targets Britain

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