Osborne's banking reforms "fall well short of what is required", warn MPs

Banks must be broken up if they try to get round the new ring-fence, says the banking standards commission.

When George Osborne appeared before the Parliamentary Commission on Banking Standards last month, he told it not to "tear up" the coalition's proposed financial reforms. But while the commission, which published its first report today, doesn't go that far, it does warn that plans to ring-fence banks' investment arms from their retail divisions "fall well short of what is required".

Appearing on the Today programme this morning, Conservative MP Andrew Tyrie, who chairs the commission, criticised Osborne for "watering down" the reforms proposed by the Vickers report. Tyrie is calling for the government to 'electrify' the ring-fence (one might call it the "Jurassic Park solution") by giving regulators the power to break up the banks if they try to evade the new rules. He said:

The proposals, as they stand, fall well short of what is required. Over time, the ring-fence will be tested and challenged by the banks. Politicians, too, could succumb to lobbying from banks and others, adding to pressure to put holes in the ringfence.

For the ring-fence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to. That's why we recommend electrification. The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it.

Tyrie's words bring him into line with Labour, which has called for the government to hold out the threat of a full Glass-Steagall-style separation if the banks refuse to implement "the spirit and principle of Vickers". Unsurprisingly, then, Ed Balls has given a warm welcome to the commission's report. The shadow chancellor said this morning: "As Ed Miliband and I said at the Labour Conference this year, if the letter and spirit of the Vickers proposals are not delivered and we do not see cultural change in our banks, full separation will be necessary. The Commission is clearly right to say the jury is still out and to demand a reserve power for full separation of the banks.

"We need serious cultural change in our banks and the Commission's next report on the culture and practices of the banks will be just as important as these vital structural changes. Only then will we get the banking system our businesses and economy needs."

In a banal response, the Treasury has said that "the government is grateful to the Parliamentary Commission on Banking Standards for its scrutiny of the draft bill and notes that it, 'welcomes the government's action to bring forward legislation to implement a ring-fence'."

But this rather ignores the fact that the same commission believes that the ring-fence, as currently proposed, is seriously inadequate. Unless Osborne proves willing to toughen his reforms, he will stand accused of failing to learn the lessons from the crash.

Conservative MP Andrew Tyrie warned that "the ring-fence will be tested and challenged by the banks". Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
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Donald Trump's threats give North Korea every reason it needs to keep nuclear weapons

The US president's warning that he may “totally destroy” the country is a gift to Kim Jong-un's regime. 

Even by Donald Trump's undiplomatic standards, his speech at the UN general assembly was remarkably reckless. To gasps from his audience, Trump vowed to "totally destroy" North Korea if it persisted with its threats and branded Kim Jong-un "rocket man". In an apparent resurrection of George W Bush's "axis of evil", the US president also declared: “If the righteous many do not confront the wicked few, then evil will triumph". 

For North Korea, Trump's words merely provide further justification for its nuclear weapons programme. Though the regime is typically depicted as crazed (and in some respects it is), its nuclear project rests on rational foundations. For Kim, the lesson from the fall of Saddam Hussein and Muammar Gaddafi was that tyrants pay a price for relinquishing their arms. The persistent threats from the US strengthen the regime's domestic position and reinforce a siege mentality. Though North Korea must be deterred from a pre-emptive strike, it must also be offered incentives to pursue a different path. 

As Trump's Secretary of State Rex Tillerson remarked last month: "We do not seek a regime change, we do not seek a collapse of the regime, we do not seek an accelerated reunification of the peninsula, we do not seek an excuse to send our military north of the 38th Parallel. We are not your enemy... but you are presenting an unacceptable threat to us, and we have to respond. And we hope that at some point they will begin to understand that and we would like to sit and have a dialogue with them."

The present nadir reflects the failures of the past. In 1994, the Clinton administration persuaded North Korea to freeze its nuclear programme in return for economic and diplomatic concessions. A communique declared that neither state had "hostile intent" towards the other. But this progress was undone by the Bush administration, which branded North Korea a member of the "axis of evil" and refused to renew the communique.

The subsequent six-party talks (also including China, Russia South Korea and Japan) were similarly undermined by the US. As Korea expert Mike Chinoy records in the Washington Post in 2005, the Bush administration provocatively "designated Macau's Banco Delta Asia, where North Korea maintained dozens of accounts, as a 'suspected money-laundering concern.'" When a new agreement was reached in 2007, "Washington hard-liners demanded that Pyongyang accept inspections of its nuclear facilities so intrusive one American official described them a 'national proctologic exam'".

For North Korea, the benefits of nuclear weapons (a "treasured sword of justice" in Kim's words) continue to outweigh the costs. Even the toughened UN sanctions (which will ban one third of the country's $3bn exports) will not deter Pyongyang from this course. As Tillerson recognised, diplomacy may succeed where punishment has failed. But Trump's apocalyptic rhetoric will merely inflate North Korea's self-righteousness. 

George Eaton is political editor of the New Statesman.