Obsorne’s banking reforms are only the start of a solution

‘The most far-reaching reforms of British banking in modern history.’ That’s how George Osborne called it in Parliament this afternoon, in a statement that contained few surprises. What the government’s doing, in large part, is to follow exactly the recommendations contained in September’s Vickers Report. But is that really as far-reaching, or as radical, as the Chancellor would have us believe?
 
Certainly, many of these reforms are encouraging: measures such as ‘bail-ins’ and ‘living wills’ should facilitate the orderly winding-up of insolvent institutions, and reduce the necessity for taxpayer bailouts. But other parts of the government’s reform package are less convincing. For instance, additional capital buffers and reductions in maximum leverage rations — which go far beyond those being negotiated through the Basel process or in the EU — will be potentially damaging to the UK’s status as a global financial hub, without necessarily improving financial stability. Don’t forget, Lehman Brothers and Northern Rock had significant core capital but still collapsed.