It seems a long time ago but when Sir John Vickers’ Independent Commission on Banking first advocated a banking ring-fence in November 2011, it was controversial.
The British Bankers’ Association was up in arms, warning about the economic damage and that banks may choose to leave Britain. Many shared concerns about what it would mean for Britain’s competitiveness.
Despite cross-party support the Government was seen as politically bold to accept a ring-fence in principle. As soon as it did a furious bank lobbying campaign, labelled “dishonest” by one Bank of England policy wonk, swung into action to water down some of the technical detail.
As late as June this year, former BBA chief executive Angela Knight felt confident enough to blast the Government for “shooting itself in the foot” with reforms.
Not any more. As former Barclays chief executive Bob Diamond never said, “the time for remorse is now”. In June, the Libor rigging scandal rocked Barclays with £290m worth of global fines and more banks are still under investigation.
In the same week Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland agreed to pay damages to small businesses for ripping them off with complex interest rate swaps.
Since the summer, the political mood has hardened dramatically.
In July chancellor George Osborne set up the Parliamentary Commission on Banking Standards and chair Andrew Tyrie has already been asked whether to exclude interest rate swaps from the retail ring-fence.
MPs are calling for the timetable for implementing changes to be moved forward from 2019 to 2015 as anger builds. Rather than a bold move the ring-fence now looks like the absolute minimum the Government should be doing.
Last week, former Federal Reserve chairman Paul Volcker argued that ring-fences are porous and “break down over time”. The Dodd-Frank reforms in the US have a so-called Volcker rule to separate trading and retail arms.
Some fund managers are now calling for full separation to make banks more reliable investment prospects instead of the uncertainties they are currently considered.
In his conference speech, Labour leader Ed Miliband backed total separation if Vickers’ reforms did not work, telling banks “we can do this the easy way or the hard way”.
Lansons Communications director Ralph Jackson says: “The current debate is tending towards a banking system that is beneficial for consumer and that investment banking isn’t the kind of thing you and I sign up to when we walk into a branch.
“There is a broader debate around the future of banking and whether the calls for distinct separation become clearer and louder in consumer media and political circles so that it becomes an inevitability.”
Tyrie’s inquiry will focus on exactly how banking structure affects culture until Christmas and has indicated he will toughen up reforms.
Jackson says: “The commission will be considering whether these people can change so we don’t need this very clear, stark distinction that some are calling for. Next year we will know the answer.”
Whatever happens next year, a Labour-led administration after the 2015 election could see another round of reforms beyond those currently proposed.
Nothing much is certain in UK banking except the direction of travel towards tougher rules.
Samuel Dale is political reporter at Money Marketing- follow him on twitter here