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British report British report
by Euro Reporter
2011-05-25 09:15:49
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Competition Commission investigation into UK banking "inevitable"

Lloyds and the Treasury are locked in talks on the issue but the banking group has made it clear it sees no reason why it should dispose of any more branches than it has already agreed to. The row between Lloyds, which is 41pc owned by the state, and the Government came as Sir John Vickers, the chairman of the Government-appointed Independent Commission on Banking, told MPs on Tuesday that Lloyds should pre-empt the Commission's report and make clear its intention to concede on the issue.

"I think it would be in everyone's interest if there were positive developments at the parties concerned," said Sir John in evidence to the Treasury Select Committee. Sir John also repeated his opinion that the previous Government's decision to wave through the merger of Lloyds TSB and HBOS at the height of the banking crisis in late 2008 had been "regrettable". Andrew Tyrie MP, chairman of the Committee, said: "It is bad for banks that banking became politicised because of the HBOS deal. The differences between Lloyds and the Vickers Commission are a reflection of the difficulties of the clear up operation." One of the first actions of António Horta-Osório, the new Lloyds chief executive, when he took over at the beginning of March was to accelerate the bank's European Commission-mandated sale of 600 branches.

Earlier this week, Mr Horta-Osório appointed a management team to lead what will become an entirely separate business. However, he has made clear to the Commission and the Government that he does not think any further sales are justified by competition concerns. Speaking after Lloyd's annual general meeting last week, Sir Win Bischoff, the bank's chairman, declined to rule out taking legal action against the authorities to counter any sales order. "We've made a deal which is 600. Anything, even one more branch, is obviously not [acceptable]," said Sir Win. "There's a legal agreement we've got in relation to that, and revisiting that quite apart from anything else there is a legal agreement which was made between Brussels, [the Treasury] and ourselves."


Tyrie's team turns light on U.K. banking debacle

Over the years, the U.K. Parliament's Treasury Select Committee has earned itself a justified reputation for generating more heat than light. Its members have tended to grandstand for the benefit of the media rather than engage in serious scrutiny of financial policy and as a result its reports have been largely worthless. But under new chairman Andrew Tyrie, the committee is taking its task far more seriously. Despite the occasional lapse, such as when committee members harangued new Barclays boss Bob Diamond earlier this year, it is going about its business with a seriousness of purpose that suggests it may yet make a worthwhile contribution to financial policy at a time when robust parliamentary scrutiny is urgently needed.

A case in point was Tuesday's cross-questioning of three of the five members of the U.K.'s Independent Commission on Banking. This was the first public appearance by Sir John Vickers, Bill Winters and Martin Taylor since the ICB published its interim report in April which recommended British banks be required to ring-fence their U.K. retail operations. That report received mixed responses at the time. Vince Cable, the Liberal Democrat Business Secretary, expressed himself well satisfied with the ICB's direction of travel, which largely explained why people close to George Osborne declared the Chancellor to be ecstatic. Meanwhile much of the U.K. press wondered if the report was a whitewash which would allow the banks to emerge from the crisis unscathed.

In fact, the report was a half-baked shambles. As the Treasury Committee exposed during two and a half hours of respectful but forensic questioning, the idea of a retail ring-fence has been so poorly thought through that the ICB members couldn't explain how it might work in practice, what it might cost the banks or the economy, or how far it might help prevent a future crisis. Sir John was unable to say what assets would be ring-fenced, how a retail operation would be funded, or what its governance arrangements might be. All aspects of the proposal are up for discussion, without even some basic models on the table for analysis. Sir John emphasized the ICB's determination to eliminate the taxpayer subsidy to banks, but could not say with any conviction how big this subsidy is, or who benefits from it, or who would bear the cost of eliminating it.

None of this will have surprised those who engaged with the ICB in the run-up to the publication of the report. During those final weeks, ICB staff criss-crossed London in an increasingly desperate attempt to put some flesh on the bones of their idea, unable to come up with a proposal that did not do substantial harm to the interests of one bank or another. Towards the end, an increasingly alarmed Treasury had to get involved; high-level phone calls were made to executives at Royal Bank of Scotland imploring them to help Sir John out of the hole he appeared to be digging for himself. Indeed, the Treasury is now closely involved behind the scenes helping the ICB secretariat find a practical way to make the ring-fence work that won't trigger unintended consequences.


Minister pushes more U.K. sway

U.K. financial firms and the British government must push harder to influence regulations that come from Brussels, a British government minister said. David Lidington, the U.K.'s minister for Europe, said in an interview that London-based financial-services firms need to show they benefit the whole of Europe and not just the U.K. The U.K.'s financial regulators are seen within Britain as essentially arms of a Brussels-based regulatory system. "I am not satisfied with the way in which U.K. interests are winning the day in Brussels," he said. "What is important is that we try to get more on the front foot in Brussels so that we are trying to shape initiatives rather than just react to them."

Mr. Lidington said there are about 30 proposed European Union financial-services regulations that the U.K. must engage with from the start rather than complain about once they have been adopted. He said the U.K. hasn't been as good at influencing European regulation as other countries. Mr. Lidington said the U.K. also must engage with the European Parliament, which won increased powers under the Lisbon Treaty that took effect last year. U.K. public and private institutions have acknowledged that much financial regulation now comes from Brussels, not London. Last week, Hector Sants, slated to become chief executive of the U.K.'s new Prudential Regulation Authority, described the agency as essentially a "supervisory arm of a European regulatory regime" and encouraged firms and trade associations to increase their level of contact with the European process.

"In some parts of the European debate you have a characterization of the City of London as ruthless Anglo-Saxon capitalism, and not enough weight is being given to the part it plays to the prosperity of Europe as a whole," he said. He said London firms are deeply involved in managing pensions and advising businesses around Europe.

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