Narrow Banking

In recent years, everyone who didn't work in the financial sector  had to learn a bewildering array of new terms such as CDS, CDO to discover why were all FCUKD. Financial armageddon threw up novel buzzwords like toxic debt which is actually a polite way of saying a 'piece of crap'. In fact one Goldman Sachs employee used that very phrase to one of his colleagues when describing a  Goldman's securitised debt product known as Timberwolf. This debt bundle is currently the subject of numerous lawsuits and now a probe by the Serious Fraud Office.  I imagine the buyers of Timberwolf wish they had bought actual wolf shit instead of American subprime mortgages.

So why mention all of this now? The ICB, the Independent Commission on Banking, is proposing that we split retail and investment or casino banking. To compare investment banking to casinos is a slur on casinos who are a lot more ethical and do a lot less damage to our collective wallets. Splitting regular retail or consumer deposit taking banking from exotic trades involving derivates is what is called 'narrow banking'  or 'common sense'. The banks don't like it, so David Cameron wants to water down the proposals. I'm probably being unfair in suggesting there is a relationship between the Tory party's funding coming almost exclusively from financial services firms and David Cameron's desire to neuter banking reform even after the worst financial catastrophe in British history. There's no link at all. I'm sure George Osborne is similarly independent. When he leaves government, I doubt that there will be any connection between his taking a  lucrative directorship in a bank and his opposition to structural reform whilst in government.

Banks don't like the split between retail and investment, because it reduces profits. It reduces profits in the same that forcing a ferry company to provide lifejackets reduces profits or putting fire exits into commercial properties hits the developers' margins. Sometimes you have to take a bit of small short term pain to avoid long term catastrophe.

If you think about this way, banking reform is a like a vaccination: putting up with one little prick, the BCG jab, to avoid a much bigger prick later on. In case of BCG, then it's tuberculosis, in the example of banking, the bigger pricks would be Bob Diamond, Lloyd Blankfein  and friends. Now I realise that comparing bankers who oppose reform to lethal pathogens such as TB is a little unfair. The TB bacterium is just doing what comes naturally. On its CV, its skills are just 'being a TB bacterium' and even if  it went down the job centre, not even Currys Digital would hire it as Saturday staff.

Bankers on the other hand have choices. Bob Diamond of Barclays, to pick someone entirely at random who said last year that banking bashing had got out of hand and also recently hoped the coalition didn't lose its nerve on cuts, whilst pocketing a £13 million pay cheque for moving other people's money around, that Bob could do other things, he has choices. I'm sure his CV includes a range of skills. He could - and this is just friendly advice - go for a really long walk and not bother coming back. (This is the same Bob who runs a bank that managed to pay only £113 million in UK tax on £4.6 billion profit, in 2009. So I guess he's good with numbers if nothing else).

Sadly she dies of anthrax in the next scene. 

Narrow banking matters if we want to vaccinate ourselves against financial epidemics. The new blockbuster Contagion takes as its premise a disease for which there is no known cure. It is a terrifying, depressing vision of future apocalypse with the only light relief being Gwyneth Paltrow's sudden death at the beginning of the film.  I predict a box office smash and suggest that producers introduce this plot twist into all of Gwyneth Paltrow's films; it's hard to think of one which would not have been vastly improved by her character's death within the first ten minutes. Same holds true for Keira Knightley.

But I  digress, the important difference between the fictional contagion and our affliction is a known cure exists: narrow banking.  Mr Cameron, please for once, try to do the right thing. Spike Lee seemed to think it was throwing a bin through a pizza parlour window, unless I missed the moral of that film. Don't throw anything through shop windows, we've only just got them fixed after the riots. Just let the Independent Commission on Banking be independent and do what they suggest.