Games that people play

7 July 2009

It was good to see Mervyn King relaxing in the Royal Box at Wimbledon for the men’s final on Sunday, and indeed, at some of the other matches during Wimbledon fortnight.

I took it as a sign that things were getting better –that at last he could afford to take his steady hand off the helm for just a few short hours because the economy was picking up, the housing market was looking brighter, and that despite all the media speculation, he and Alistair Darling and Lord Adair Turner were at one with regulatory reform.

In short the governor of the Bank of England was sanguine about the contents of the banking reform white paper expected on Wednesday which, according to the chancellor, will provide a blueprint for a crisis free banking world.

However, in his Mansion House speech just last Wednesday King complained that he lacked the powers he needed to fulfil his new statutory role of ensuring financial stability and as Darling had already gone on record as saying there were no plans to radically reform the Tripartite system, it was obvious that the Bank and Whitehall were not seeing eye to eye.

That of course would not be a new situation and amounts to a replay of the tensions between the Bank, the Treasury and the Financial Services Authority in the blame game that followed the collapse of Northern Rock back in 2007.

Calling for more power to intervene in the action of banks King said: “If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big. It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure.”

“Either those guarantees to retail depositors should be limited to banks that make a narrower range of investments, or banks which pose greater risks to taxpayers and the economy in the event of failure should face higher capital requirements. Or we must develop resolution powers such that large and complex financial institutions can be wound down in an orderly manner. Or perhaps, an element of all three.”

But to return to Wimbledon, I wonder if King had his money on Roddick or Federer, or as the match progressed to a super-sized five-setter, if as a dispassionate observer, he was there to pick up tips on how to play the long game and on how talent might overcome the stubborn tryer?

Whether the final outcome will be love all, the problem is that the game being played out between the respective members of the Tripartite Authorities is a diversion to the real issues which were recently highlighted by Angela Knight, director general of the British Bankers Association, who said:

“First, as a consequence of FSA decisions, banks are already holding more capital than is required by the Basel II standards.

“Second, the more capital and liquidity banks have to hold, the less they are able to lend. We cannot use the same money twice.

“Thirdly, London is international so changes need to be taken on an international basis with, at the very least, countries with other major financial centres interpreting and applying changes in a similar fashion and on a similar timescale – one that recognises that the first priority has to be recovery from this recession.”