Banking: Big brains, small ideas
The question raised by the commission's report is whether stiffening simple rules can tame more complex financial beasts
The prototype banker was a smith, who kept gold bars safe and wrote promissory notes on the strength of them. In his long lost world, it would have been easy enough to set prudential rules about how many notes he could pen for each bit of bullion. The question raised by Monday's report by the Independent Commission on Banking is whether stiffening simple rules can tame today's more complex financial beasts.
The distinguished panel headed by Oxford economist Sir John Vickers said it wanted to reduce the temptation for banks to take risks, to improve their ability to absorb them, and to make it easier to clear up the mess when things nonetheless go wrong. The stress was on crisis prevention, and three years after the financial world stopped turning the exercise could be likened to installing fire sprinklers in a building that has already burned down. But the sad truth is that it is imperative to act now to avert another crunch. The scandal of institutions that were too big to fail would be as nothing compared with the catastrophe we'd be in next time, with huge pre-existing public debts that would render some banks too big to rescue.
It is a mark of the calibre of the commission that it felt no need to proclaim its recommendations radical, as most reports nowadays do. Instead, they straightforwardly proposed a mixed menu of "moderate measures" which they hope will combine to check the City's reckless ways without destroying its competitiveness. Attention was grabbed by the suggestion of forcing financiers to split casino and day-to-day operations into different divisions, a pale imitation of the outright split into different companies which the US imposed in the depth of the Great Depression and which Vince Cable had demanded at the peak of the crunch.
Having shrunk from going the whole hog, the commission seemed doubtful about the difference it could truly make here. It is "mindful of regulatory arbitrage possibilities at the boundary", which translates into English as an acknowledgment that financial professionals who make a handsome living from wriggling around rules and taxes will soon enough find the means to connect notionally separate divisions. This pessimistic note is in keeping with the previous scribblings of one commissioner, the Financial Times journalist Martin Wolf, who has warned of the huge difficulties of policing any boundary between retail and investment activities, and also questioned the point. The crisis, after all, has revealed that the taxpayer is effectively obliged to rescue all manner of things that fall on the wild side of the border, including corporations such as Lehman Brothers, which never took retail deposits. Aside from some significant but tangential suggestions for curbing the power of HBOS on the high street, the meaty recommendations were for higher capital requirements. These could have made a difference last time around, by forcing banks to underwrite more gambling with resources of their own. But there was a touch of naivety in the recommendation that for non-retail banking, the requirements need never exceed international standards. With the threat of unilateralism removed, the banks would be emboldened to work with their counterparts overseas to frustrate multilateralism.
The more general sense is that the "moderate measures" are not commensurate with the scale of what went before – an inevitable effect, perhaps, of the terms the chancellor set. An irresponsible sector beset by conflicted interest is now more certain than ever that the taxpayer stands behind it. There is still no onus on anyone devising new gambles to explain what good these are supposed to do, even though the top regulator, Adair Turner, has said many are "socially useless". And there is still no thought about how the state might use banks that it unexpectedly acquired for the common good. Big as the commission's brains are, all these questions must await another day.
The distinguished panel headed by Oxford economist Sir John Vickers said it wanted to reduce the temptation for banks to take risks, to improve their ability to absorb them, and to make it easier to clear up the mess when things nonetheless go wrong. The stress was on crisis prevention, and three years after the financial world stopped turning the exercise could be likened to installing fire sprinklers in a building that has already burned down. But the sad truth is that it is imperative to act now to avert another crunch. The scandal of institutions that were too big to fail would be as nothing compared with the catastrophe we'd be in next time, with huge pre-existing public debts that would render some banks too big to rescue.
It is a mark of the calibre of the commission that it felt no need to proclaim its recommendations radical, as most reports nowadays do. Instead, they straightforwardly proposed a mixed menu of "moderate measures" which they hope will combine to check the City's reckless ways without destroying its competitiveness. Attention was grabbed by the suggestion of forcing financiers to split casino and day-to-day operations into different divisions, a pale imitation of the outright split into different companies which the US imposed in the depth of the Great Depression and which Vince Cable had demanded at the peak of the crunch.
Having shrunk from going the whole hog, the commission seemed doubtful about the difference it could truly make here. It is "mindful of regulatory arbitrage possibilities at the boundary", which translates into English as an acknowledgment that financial professionals who make a handsome living from wriggling around rules and taxes will soon enough find the means to connect notionally separate divisions. This pessimistic note is in keeping with the previous scribblings of one commissioner, the Financial Times journalist Martin Wolf, who has warned of the huge difficulties of policing any boundary between retail and investment activities, and also questioned the point. The crisis, after all, has revealed that the taxpayer is effectively obliged to rescue all manner of things that fall on the wild side of the border, including corporations such as Lehman Brothers, which never took retail deposits. Aside from some significant but tangential suggestions for curbing the power of HBOS on the high street, the meaty recommendations were for higher capital requirements. These could have made a difference last time around, by forcing banks to underwrite more gambling with resources of their own. But there was a touch of naivety in the recommendation that for non-retail banking, the requirements need never exceed international standards. With the threat of unilateralism removed, the banks would be emboldened to work with their counterparts overseas to frustrate multilateralism.
The more general sense is that the "moderate measures" are not commensurate with the scale of what went before – an inevitable effect, perhaps, of the terms the chancellor set. An irresponsible sector beset by conflicted interest is now more certain than ever that the taxpayer stands behind it. There is still no onus on anyone devising new gambles to explain what good these are supposed to do, even though the top regulator, Adair Turner, has said many are "socially useless". And there is still no thought about how the state might use banks that it unexpectedly acquired for the common good. Big as the commission's brains are, all these questions must await another day.
Ivory Coast: Fall of a despot
The capture of Laurent Gbagbo has lifted a threat to millions of Ivorians and the wider region - and now he should stand trial
There will be some relief today that a foreign intervention has gone right, for once. The French military spokesman in Abidjan denied reports that Laurent Gbagbo had been captured by French special forces. Not one French soldier had gone into the residence in which Gbagbo had been arrested, Commander Frederic Daguillon insisted. But the matter was decided by a column of 30 French armoured vehicles. And the fact is that had the French and the UN not been stung into action by attacks on their headquarters, the Golf Hotel – where Alassane Ouattara and his government in waiting were holed up – and also the residence of the French ambassador, a civil war would still be raging.
Until the assault, Gbagbo's men had been gaining ground. They recaptured the television station and attacked civilians in the Adjamé and Attécoubé neighbourhoods of the city, which contain many opposition supporters. There was a real risk of a repeat of the ethnic slaughter that took place recently in Duékoué. French forces may want to disguise the role they played, but the result of the assault is welcome. A strongman who defied the outcome of a fair election, who rejected numerous offers of safe passage out of the country, and who had plunged it back into a civil war, has been captured alive. This is important for several reasons.
Gbagbo's refusal to go was a threat not only to millions of his own countrymen but to the region as a whole. The election in November was already five years late and the result of a series of compromises with the rebels in the north. There was no doubt that he lost the runoff nor that his militias resorted to gang warfare, abductions and rape to enforce his unwelcome stay. The terror was premeditated. Hundreds died before northerners decided to settle matters militarily. Eleven other elections are due to be held this year in Africa, not least in Nigeria. After three successive flawed elections, ethnic violence may yet undermine Nigeria's fourth attempt. It is essential that elections mean what they say and that the collective will of regional groups like the Economic Community of West African States is enforced. This may be the only way to break the link between elections and civil disorder.
But it is also important that Gbagbo should now stand trial. The worse his militias behaved, the more it is incumbent on the rightful government to re-establish the rule of law. This did not happen in Duékoué, and, as Human Rights Watch has urged, Mr Outtara will have to investigate and prosecute abuses by both sides, and especially his own, if peace is ever to be established in this country.
Until the assault, Gbagbo's men had been gaining ground. They recaptured the television station and attacked civilians in the Adjamé and Attécoubé neighbourhoods of the city, which contain many opposition supporters. There was a real risk of a repeat of the ethnic slaughter that took place recently in Duékoué. French forces may want to disguise the role they played, but the result of the assault is welcome. A strongman who defied the outcome of a fair election, who rejected numerous offers of safe passage out of the country, and who had plunged it back into a civil war, has been captured alive. This is important for several reasons.
Gbagbo's refusal to go was a threat not only to millions of his own countrymen but to the region as a whole. The election in November was already five years late and the result of a series of compromises with the rebels in the north. There was no doubt that he lost the runoff nor that his militias resorted to gang warfare, abductions and rape to enforce his unwelcome stay. The terror was premeditated. Hundreds died before northerners decided to settle matters militarily. Eleven other elections are due to be held this year in Africa, not least in Nigeria. After three successive flawed elections, ethnic violence may yet undermine Nigeria's fourth attempt. It is essential that elections mean what they say and that the collective will of regional groups like the Economic Community of West African States is enforced. This may be the only way to break the link between elections and civil disorder.
But it is also important that Gbagbo should now stand trial. The worse his militias behaved, the more it is incumbent on the rightful government to re-establish the rule of law. This did not happen in Duékoué, and, as Human Rights Watch has urged, Mr Outtara will have to investigate and prosecute abuses by both sides, and especially his own, if peace is ever to be established in this country.
In praise of … Yuri Gagarin
The first human to travel in space remains an inspiration 50 years after Vostok's perilous launch into orbit
It is difficult for heroes to remain untarnished, still less Soviet ones, but on the 50th anniversary of the first human travel in space, such a fate is reserved for Yuri Gagarin. The 108-minute flight itself very nearly ended in disaster. The hatch had to be taken apart to mend a faulty sensor shortly before takeoff; the combined weight of Gagarin, his spacesuit and chair was 30lbs over the limit and part of Vostok's internal apparatus had to be dumped; he was blasted into a higher than intended orbit when one of the engines failed to cut out; his capsule went into a dangerous spin on re-entry and he was subjected to a G-force that increased his body weight tenfold; after which he had to bail out, landing in a ploughed field 200 miles off course. But walk away from it he did, and into history. If, in Moscow, he got the acclaim reserved for war heroes (his childhood city of Gzhatsk was renamed after him), the reception he got in London in 1961, in an open silver Rolls-Royce with a special issue licence plate "YG-1", was no less rapturous. He symbolised the future. He embodied the illusion that the Soviet Union was outperforming the west, and launched the 1960s as a decade of space travel, which ended when Neil Armstrong landed on the moon. One year earlier Gagarin died in a plane crash. He could not have thought that when he said "off we go" on the launch pad that he personally would have touched so many people's lives. He still inspires today and deserves his place among the world's great explorers.
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