Posts Tagged ‘Paul Crowe’

If we are serious about growth, Labour should reject today’s banking commission report

21/12/2012, 01:58:28 PM

by Paul Crowe

Another day, another report telling us we need to be tougher on the banks. Today it’s the turn of the parliamentary commission on banking standards. In case you’re getting confused about which review is reporting now, this lot were set up by the government in response to the Libor scandal in summer.

The commission is a mish mash of MPs, peers and assorted others like Justin Welby, the soon to be archbishop of Canterbury. The top line of their report calls for the ring fence between retail and investment banking to be “electrified.” A vivid turn of phrase, yes, Helpful? Hardly.

For two years now there has been incessant legislative hand wringing about what to do about banking. The Vickers commission, the select committee and now this new banking commission, all speculating on the laws required to make sure the crash will never happen again.

Here’s a newsflash: ring-fencing and its associated regulations would not have stopped what happened in2007 and 2008 in the UK.

HBOS, Northern Rock and Bradford and Bingley went down without having major investment banking divisions. Bad property deals are what brought down British banking.

Rarely has so much political and economic consideration been expended on laws that fundamentally fail to address the avowed purpose of the exercise.

If the net results of commissions such as this latest one were just a couple of forests felled to print hard copies of the final report, and some talking heads ventilating on the media, then the impact would be relatively harmless.  A waste of time, and some resources, but nothing to hurt the fundamentals of the British economy.

But this isn’t what has happened.


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Vince Cable’s plans for a British investment bank are a joke but Chuka’s aren’t much better

12/09/2012, 02:00:29 PM

by Paul Crowe

Oh dear. Yesterday was Vince Cable’s big day: the launch of his industrial strategy with a new state backed business investment bank at its heart. This bank is meant to plug the lending gap for small businesses and help drive economic growth. Pretty important stuff. News of the bank was the mainstay of the briefing to the media and had top billing in his speech.

Except that Vince didn’t actually announce the establishment of a new bank.

Instead he talked about how he would quite like one. Much as my four year old son tells me how he would quite like a light sabre.

The nearest we got to a commitment was Cable’s explanation that he was working with George Osborne on “how big it should be, how it should operate, and what the sectors it services should be.”

Over two years in government as secretary of state for business and Vince Cable has managed to confirm not a single detail of his flagship policy. Well done.

Chuka Umunna was justifiably scathing.

“Ministers need to come clean on whether they are proposing a proper British Investment Bank, which Ed Miliband has led calls for since last year, or merely a rebranding exercise of schemes which already exist and are not doing enough to help business.”

It is almost beyond belief that after so long in office there is no clear plan to deliver what is meant to be the centre-piece of the government’s industrial strategy.

But Labour cannot afford to be smug. If Vince Cable’s plans are a joke, then Labour’s alternative raises a smile in anyone who has worked in finance.

A few weeks ago Labour published, “The Case for a British Investment Bank”. It was written by Nicholas Tott, a former partner in corporate law firm, Herbert Smith.

Tott is a PFI expert and understands banking. He is a serious man, but his report is part of a political process and reads as such.

The critical passage is in the conclusion,

“The key principle for any British Investment Bank is that it must operate in a commercial manner to ensure that investments and interventions are made on a rational basis, only to support viable businesses with a proper analysis and pricing of risk.”

At the moment we have a banking sector that is palpably failing to provide small business with the finance it needs. It is a sector that is working in a commercial manner, making judgements on the riskiness of investments and viability of proposals in line with market norms.

Yet Labour’s report is calling for a British investment bank to operate exactly in the commercial manner that has consistently failed business.


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Labour’s policy on banks shows how little politicians (and economists) understand the business

03/09/2012, 08:59:24 AM

by Paul Crowe

The summer break is over, the kids are headed back to school and in the business pages it’s as if nothing has changed: there’s another investigation into Barclays, this time over dubious “consultancy” payments to the Qatar fund that bailed them out in the crash; RBS is under fire over pay, this time a £3.2m golden hello to their new head of retail banking and Libor investigations continue to cast a shadow over all of our banks.

The banks need to be taught a lesson. It’s almost a self-evident truth in the current political debate. The Tories are too hamstrung by their donors and innate conservatism to take the radical action needed and Labour seems to have grasped the nettle.

In July, the two Ed’s launched Labour’s blueprint for banking. At the heart of the proposals for the retail market is a commitment to force our five biggest banks to divest some of their branches so that another competitor can be created.

It’s an extension of what the European Commission has forced Lloyd’s to do as the price for allowing their takeover of HBOS. In this case, 600 Lloyds’ branches have been spun off. They will be taken over by the Co-op bank to create a new institution that is large enough to compete with the big players.

This approach was also championed by the panjandrums of the Vickers commission and in theory Labour is onto something. Divesting branches in this way directly reduces the market power of the existing banks, increases competition and should improve services for customers.

Except that the real world does not quite operate by the simple rules of elementary economic theory.

If the Ed’s had looked a bit more closely at what has happened with Lloyds’ divestment, they might have arrived at a rather different conclusion.

Based on Lloyds’ experience, the real barrier to market entry for new suppliers will not be tackled by Labour’s proposal.

As the Co-op has discovered, the biggest stumbling block to competing in the big leagues is IT. Even though they are an established bank, they have found that their IT system cannot safely deal with the extra volume of customers from Lloyds’ 600 branches.

The result? They are likely to move all of their customers onto the same huge Lloyds system that is currently used by the 600 branches, a process that will cost them hundreds of millions of pounds and reflected in the low price that the tax-payer backed Lloyds received for their divested branches.

As financially strong as a potential entrant’s balance sheet might be, unless a supplier is able to build and run one of the biggest and most secure IT systems in the country, the regulator is quite rightly unlikely to allow them into the market – if this system goes down, so does the financial stability of millions of people who depend on automated direct debits, standing orders and bank transfers.

Just ask NatWest, RBS and Ulster Bank customers how they felt when an IT glitch meant their accounts were inaccessible for a few days earlier this year.


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Why the government’s cost estimates for delivering its NHS reforms are wrong

27/02/2012, 08:42:23 AM

by Paul Crowe

The Lib Dems are tabling hostile amendments in the Lords, the former chief executive of the NHS has broken ranks to voice his disapproval and the BMA is balloting on industrial action.

Just another day in the progress of the health bill.

As the lords set to work on the bill later today, the focus will be on amendments on competition in the health sector.  But as the debate progresses they would also do well to focus on a number which has escaped proper scrutiny:- £1.3bn.

That’s what the NHS reorganisation is going to cost, according to the government.

The figure is contained in a report whose very title seems to discourage interest: Co-ordinating document for the Impact Assessments and Equality Analysis. This gives the detail of the projected costs. It’s a classic of its type: sober, measured and with an authoritative tone.

And hopelessly wrong. The £1.3bn identified will be almost certainly just the start of the spending.

To anyone with even passing experience in managing large-scale reorganisations, the department of health’s assessment should flash more warning lights than the police switchboard on riot night.

The £1.3bn figure is made up of redundancy costs of £1bn for 17,000 staff and £300m of what the department calls “one-off transition costs…around IT and property”.

In return, the government expects to make a £1.5bn saving each year after the change is implemented, giving a net saving of £3.2bn over the course of this parliament. Impressive.

Or it would be impressive were it realistic.

Few disagree on the need for reform in public services, particularly in economic times such as these. And change, when implemented in the right way can achieve the savings needed and improve care in line with the traditions of the NHS.

But looking at the scale of what the department of health is attempting and comparing it to recent corporate reorganisations, three problems are soon apparent.

First, the savings are aggressive given the costs; second, the costs identified don’t appear to be complete; and third the timetable for achieving savings is optimistic to say the least.


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Labour needs to back finance not attack it

08/02/2012, 07:00:29 AM

By Paul Crowe

Everyone hates a banker these days, right? Overpaid, greedy, venal poster boys (and girls) for the gross distortion of our economy and values.

As Dave Mathieson pointed out on Monday it’s not just British bankers who are busy corrupting their national standards of decency and fairness either. The Spanish bankers are also at it, with Santander and BBVA dishing out eye-watering bonuses that will have many City types wondering what exactly their overseas brethren did to end up with both the weather and the cash.

It’s hard not to recoil when looking at the sheer magnitude of some bonuses and then the gap between top and bottom.

But here’s the problem. Words are powerful, especially on a subject as emotive as this. Attacking injustice is fine, but “bankers” has become a term of abuse that is applied without distinction and as a result ends up tarring everyone working in financial services.

This is unhelpful for the debate and dangerous for Britain’s prospects for two reasons. First, it stigmatises a hard working section of society and second it sets a political context where mindless attacks on financial services are seen as a legitimate response to the crash of 2008.


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