Giving up the levers of power
The government seems to be sending a clear signal. It is to give up the levers of power it holds through its ownership of large chunks of UK banks and the provision by the state of liquidity to others.
It has set up an arms length company, UK Financial Investments Limited, which will control the government’s shareholdings in banks including the fully nationalised Northern Rock and Bradford and Bingley.
It is to be chaired by a former finance director of Lloyds TSB, Sir Philip Hampton, who is currently chairman of the supermarket group Sainsbury.
As Robert Peston says
“…he could easily find himself siding with the City and not with ministers, if there were a dispute over – for example – whether the banks were lending quite enough to those viewed in Westminster as deserving cases.
So the Treasury is taking something of a risk by appointing him.
And there’s a further risk in its decision to create the vehicle for owning the bank stakes as a formal Companies Act company.
Well as the chairman of a proper company, Sir Philip could not be formally directed to take this or that action by ministers.”
There is a deeper question here. How are the responsibilities that go with the ownership of these banks going to be exercised by a non-accountable company? I know I have been banging on about this, but part of the problem that led to the credit crunch was that bankers were not being effectively accountable to the owners of banks.
The preference of Barclays for more expensive capitalisation from the Gulf than they would have got from the tax-payer shows the visceral hatred that senior bankers, who will have made most of the careers under deregulatory governments, have for state intervention. Although it increasingly looks like they have precious little to worry about when it comes to bonuses, there is now a big danger that they will prioritise paying back government debt above everything else, even if in the process they fail to meet the legitimate interests of the tax-payers who stumped up the cash.
Meanwhile there is some interesting news from the Financial Services Authority today. They are consulting on whether they should assume a wider regulatory role over retail banking. The concentration of ownership following the takeover of HBOS by Lloyds means there will be less competition, and consumers will need better regulation. Some have been worried that the FSA, given the need to regulate in the interests of preserving the system, would neglect the consumer angle. This may suggest not.
But that is no reason to take the pressure off the government. The Which? site www.weownthebanks.co.uk lets you send an email to the Chancellor to call for a better deal for consumers from the banks.