Labour is calling for a two-part judge-led inquiry, with the first part reporting by the end of 2012 on the scandal surrounding Libor, and the second part looking over 12 at wider questions about the culture and practices within the banking industry.
David Cameron has previously said that a judge-led inquiry is the best way of getting to the truth.
"I don’t believe there is any better process than an inquiry led by a judge where people give evidence under oath" David Cameron, BBC Andrew Marr Show, 29 April 2012
“If the hon. Gentleman is really concerned, as I am, about making sure that all the information about this is properly looked into, what is preferable: a civil service-run process where you can look at papers and ask questions, or a judge-led inquiry with Ministers answering questions under oath where all the documents have to be revealed and the whole thing is pursued properly by a team of barristers who are expert at finding out the facts?” David Cameron, Hansard, 30 April 2012, column 1251
David Cameron's views on on regulation are revealing. In 2008, after the start of the financial crisis, David Cameron complained to a City audience that “a significant part of Labour’s economic failure” had been “too much regulation”.
“As a free-marketeer by conviction, it will not surprise you to hear me say that a significant part of Labour’s economic failure has been the excessive bureaucratic interventionism of the past decade too much tax, too much regulation, too little understanding of what our businesses need to compete in the modern world."
David Cameron, speech to the City of London, 28 March 2008
This is what he said later the same year on 30 April in a speech to the Institute of Directors. He said: "You want me to give you lower taxes and less regulation". Then he added: "I want to give you lower taxes and less regulation."
On interest rate insurance mis-selling and the watering down of Vickers’ recommendations he also got it wrong.
The final report from Sir John Vickers’ Independent Commission on Banking recommended that derivatives trading – except where necessary for the retail bank to manage its own risk – should not be permitted within the ring-fence.
“So the following activities should not be carried on inside the ring-fence: services to non-EEA customers, services (other than payments services) resulting in exposure to financial customers, ‘trading book’ activities, services relating to secondary markets activity (including the purchases of loans or securities), and derivatives trading (except as necessary for the retail bank prudently to manage its own risk).”
Independent Banking Commission, Final report, p. 11
However in its recent white paper, the Treasury has argued that ring-fenced banks should be allowed to sell “simple” derivatives products to their customers.
“It is the Government’s view that a ring-fenced bank may be permitted to provide ‘simple’ derivatives products to its customers, provided that a number of conditions are met”
HM Treasury, financial regulation white paper, June 2012, p. 22
Permitted products would include those “whose purpose is to fix or cap client market exposures to interest rate or foreign exchange rate risk related to the business of the ring-fenced bank” (HM Treasury, financial regulation white paper, p. 22). These are similar to the products which banks - Barclays, HSBC, Lloyds and RBS – were found to have mis-sold to SMEs by the FSA last week. According to the FSA banks sold around 28,000 interest rate protection products to customers between 2001 and 2012.
“Interest rate hedging products can protect bank customers against the risk of interest rate movements and can be an appropriate product when properly sold in the right circumstances. During the period 2001 to date, banks sold around 28,000 interest rate protection products to customers.
These products range in complexity from comparatively simple “caps” that fixed an upper limit to the interest rate on a loan, through to the more complex derivatives such as “structured collars” which fixed interest rates within a band but introduced a degree of interest rate speculation.”
FSA, 29 June 2012, http://www.fsa.gov.uk/library/communication/pr/2012/071.shtml
Sir John Vickers criticised the Government for watering down some of the recommendations in his final report. Speaking to the Financial Times on 14 June 2012 he said: “The white paper proposals are far-reaching, but on some points – such as limits on the leverage of big banks – we believe they should go further. We welcome that the ICB proposals have been accepted in large part, but urge the government to resist pressure to weaken their effectiveness.”
Martin Wolf, who was a member of the Vickers Commission, yesterday described the Government’s decision not to implement this recommendation as “really quite dangerous. It leads to the very serious risk of mis-selling”.
David Cameron and the rest of his Government simply haven't got it when it comes to sorting out the banks. Could it have anything to do with who bankrolls the Tory Party?
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Interesting article but hedging is a very complicated subject and those that know receive the reward for it. Let’s look at the other side imagine all the pain and grief they went through before the reward. To know more about interest rate hedging Click here.
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