Show Hide image

British banking commission urges stringent capital ratios

The parliamentary commission on banking standards said that elements of the proposed new banking law are overly weak.

The British parliamentary commission on banking standards, chaired by Conservative MP Andrew Tyrie, has expressed concern that the government’s proposed new banking legislation doesn't require a stronger leverage ratio, an important measure that limits a bank’s size relative to its equity capital.

In its report, to be published today, the commission said that elements of the proposed new banking law are very weak and should be made more stringent.  

The commission further said that the proposed law falls short of its earlier recommendations.

As per the proposed law, a bank’s equity capital must exceed 3 per cent of its assets in line with new global rules of the Basel III rulebook. The earlier Vickers review recommended a leverage ratio of at least 4 per cent.

In its report, the commission said that: “The historic and prospective ineffectiveness of risk-weighting makes leverage ratios at the appropriate level all the more important as a backstop and adds that it is wholly unconvinced by the government’s insistence on a 3 per cent ratio.”

George Osborne gave more power to commission to examine the law being used to implement the Vickers review and its central recommenation that high-street banks be ringfenced from riskier investment banking operations, according to the Financial Times.

Tyrie said: “The government rejected a number of important recommendations. The commission has examined these again, alongside the government’s explanations for rejecting them. We have concluded that the government’s arguments are insubstantial. There remains much more work to be done to improve the bill.”

Ed Balls, Labour’s shadow chancellor, welcomed the commission’s amendments. “In particular we need a strong reserve power with the option for full separation of banks across the board, and not just for one or two banks,” Balls said.

The commission was set up in 2012 to examine principles in banking in the wake of the London inter-bank lending rate (Libor) scandal.

Show Hide image

Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.