The Liberal-Conservative coalition agreement involves the setting up of a cabinet committee on Banking which will be chaired by George Osborne; and this committee will set up an independent commission to look into whether the banks need breaking up and how to do it.

As the banks collapsed in 2008, I was doing some research on banking regulation for Localise West Midlands, and followed the collapse very closely. Within weeks we reported on how the UK banking collapse was mainly evident in the banking centres outside the city of London. The banks that went down were the banks increasingly centred on Scotland and those that emerged out of northern building societies. Our report which is outlined on our website highlighted how Barclays and HSBC, the more City and international orientated banks, had not needed to be re-financed by us taxpayers.

It seemed to me that what had got our banks into this mess was the mania for a new globalisation. ‘We may be based in Bingley, but we can conquer the world !’ But that global role seemed to consist of finding that they could borrow huge sums of money on Wall St in New York, and using it to fund increasingly ridiculous mortgages in the UK. So prices of houses, especially outside London, were driven up –¬†especially in relation to wages. So when this all went wrong, the banks would have bad loans based on houses which might not be worth what was paid for them. Hence bank shareholders walked away. And the taxpayer had to come in.

Exotic loan instruments have been blamed for the crash by most commentators, but most of those bits of paper were based on house prices at the end of the day.

We have argued that the banks need to be run and regulated on a more regional basis. House price inflation needs to be controlled as part of counter-inflation policy.

I welcome the coalition setting up an independent enquiry into the re-shaping of the banks. I look forward to bringing our conclusions of 2008 to their attention. The Brown government had systematically tried to close down debate on this issue. Credit must be given to Messrs Cameron and Clegg for re-opening the issue despite the hostility of the bankers.
ANDREW LYDON

The text of the Coalition agreement on the Banks is as follows:

4. Banking Reform

The parties agree that reform to the banking system is essential to avoid a repeat of Labour’s financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs.

We agree that a banking levy will be introduced. We will seek a detailed agreement on implementation.

We agree to bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.

We agree to bring forward detailed proposals to foster diversity, promote mutuals and create a more competitive banking industry.

We agree that ensuring the flow of credit to viable SMEs is essential for supporting growth and should be a core priority for a new government, and we will work together to develop effective proposals to do so. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks.

The parties wish to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this would take time to get right, the commission will be given an initial time frame of one year to report.

The parties agree that the regulatory system needs reform to avoid a repeat of Labour’s financial crisis. We agree to bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.

The parties also agree to rule out joining the European Single Currency during the duration of this agreement.