A couple of weeks ago we spotted some fairly concerted bank lobbying, which gives the appearance they feel that with a bit of luck they may get away scot-free. Pesto reckons developments on Basel III gives credence to this, and the soi-disant stress tests didn't exactly prove stressful. Osborne heckles a bit from the sidelines on lending and bonuses, but his Bank Levy didn't cause them much distress.
The banks have come up with a one-liner that serves for several purposes: don't make us hold more capital against risk, because then we won't be able to - indeed we can't - provide the lending you want, to get the economy going. Woe, and thrice woe to your recovery !
They and their proxies need to tread carefully on this because, instead of being taken as an argument for backing down on higher risk-capitalisation requirements, it can be flipped on its head and given as a reason for breaking up the banks; so that retail banks would no longer be allowed to run speculative trading operations. CU’s insider told him this was to be Coalition policy, and the Government's Programme states:
“we will establish an independent commission to investigate the complex issue of separating retail and investment banking”
Pure trading-houses can be allowed to be as under-capitalised as they (or their stakeholders and counterparties) feel they can get away with - caveat emptor. And the debate on capitalisation for retail banks boils down primarily (though not entirely) to credit risk, an altogether narrower issue than when speculative exposure to general market risk is part of the mix.
All the lobbying on this strongly suggests there is cross-subsidy going on between retail and spec operations, the prop-trading getting a free ride on the capital of the retail ops. Too much hubris and this particular free lunch may be taken away when the commission reports next year. If there is one thing that will keep the less-than-ebullient Vince Cable in his post, it is to have the chance to be the one to do just this.