Can we bank on the future?


In the heart of Oxford, 14 High Street, stands the paragon of what is most exclusive and rarefied about the University of Oxford – the college of All Souls of the Faithful Departed. To this day it boasts a “militia” of intellectuals, which its founder, the Archbishop of Chichele, first aspired for when he founded the college in 1438. Just as mysterious and perhaps more sinister is the world of banking and finance. So you can imagine that it was with great intrigue that I went to interview Sir John Vickers, warden of All Souls and chair of the Independent Commission on Banking (ICB).

“We’re emerging from an almighty crisis” Sir John tells me, and in its wake the government has appointed the ICB with the formidable task of enhancing financial stability and competition in the UK.

My initial question is how much he thinks the commission can actually achieve. He had not heard the Governor of the Bank of England’s fatalistic description of banking and crises as natural bedfellows, intertwined like Oxford and the Isis. I asked Vickers what he thought and he agreed that we will always be vulnerable to a crisis. This is because the same risk that arises in the financial system when savings are channelled into investment opportunities may also enable crises to occur. Vickers explains that “there are a number of entrepreneurial activities or even things like house purchases that are not devoid of risk. House prices can go down and up, investment projects can turn out well or turn out badly. So risk is always going to be there.” There is a trade off, and so unless we prohibit lending completely there will always exist some probability of a crisis occurring.

What the commission aims for is a system “resilient to shocks” in the face of risk. It will review how much risk banks should take on and how to minimise damage in the case that a crisis occurs. Ideas like capital requirements, resolution mechanisms and ring-fencing particular banking operations are all considered by the commission. Marking the midpoint of the ICB’s lifetime, a January speech Sir John gave at the London Business School highlighted, however, how much uncertainty persists about the technical details of these solutions and their expected effectiveness.

The fuss that banks (particularly Barclays and RBS) made in response to the speech revealed significant conflicting interests. They made great effort to argue that there was no evidence that separating bank operations, a solution the ICB mentioned, would reduce risk. Whilst it is clear that such separation would reduce their profits, it is questionable how robust their arguments are. Vickers seems unphased about raising the backs of banks and well aware of public concern. When I asked him about the banks’ behaviour he commented with exquisite diplomacy “that’s fine, the more informed the debate the better”.

Vickers is a star in an academic fairy tale; persuaded by a tutor that he should sit the infamous All Souls exam, he was selected and given the golden ticket to academia. He chose to study economics and after finishing his doctorate received a fellowship at Nuffield College. Following this he was Chief Economist at the Bank of England, sat on the Monetary Policy Committee, and Director General at the Office of Fair Trading. With this background, it is little wonder that he was unruffled by my questioning as to whether he would meet the ICB’s September deadline.

Listening to Sir John’s levelheaded answers in his antiquated office, with his adorable Schnauzer, Alfie, at our feet, it was easy to forget the stark difficulties and responsibility of his job.

We have all experienced or seen the negative impacts of the financial crisis on our economy, and what the ICB recommends and whether the government complies will have great import for us all. Does Sir John care what the public thinks? Definitely. “I’m all for a very active debate – I think it is also very helpful to the work of the commission”. Acknowledging public anger over what has happened, he added “the strength of public feeling has made these questions prominent and sharp”.

So, what do you think? What should banks be allowed to do with your money?

You can learn more and participate in the debate on banking reform by attending a roundtable event: ‘The Future of Banking’, Friday 4th March (4.45pm), Gulbenkian Lecture Theatre, St Cross Building. You can find us on facebook.


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