Britain’s Labour party banks on, er, bank regulation | FT Alphaville

Britain’s Labour party banks on, er, bank regulation

Labour — they’re the red ones, we think — published their manifesto to remain as the UK’s governing party on Monday, ahead of elections in May.

And surprise, surprise, there’s a bit of bank bashing.

Here’s a summary, via Reuters:

UK LABOUR WILL COMPEL BANKS TO KEEP MORE CAPITAL, LIVING WILLS, SEEK GLOBAL BANK LEVY

UK LABOUR SAYS WILL BREAK UP STATE-OWNED BANKS, ENCOURAGE MUTUAL SOLUTION FOR N. ROCK

Now for the key bit of the manifesto version, as released (emphasis ours):

The international banking system played a key role in fuelling the most severe global recession since the Second World War. We are determined to support our financial sector and for it to be a major employer and wealth creator, but there will be no return to the excesses of the past – banks will face tighter regulation.

The banking system must support domestic businesses, including start-ups and entrepreneurs, as well as mortgages. We have agreed lending targets with those banks in which we have a stake, and there will be consequences for executive remuneration if targets are not met.

We will compel banks to keep more capital and create ‘living wills’ so that should they fail there will be no danger of that failure spreading. Because the banking crisis demonstrated the global nature of financial instability, we will continue to work with our international partners to require all banks to hold more and better-quality capital, to ensure counter-cyclical protection, and to introduce a global levy on financial services so that banks across the world contribute fairly to the society in which they are based.

The ideas have been floating around UK politics’ gaseous ecosystem for years. But we wonder what Americans heading into their own financial reform battle with the Dodd bill will think of this. They’ve discussed living wills to death, so to speak.

Economics of Contempt’s two-part series is essential reading here and here, compared with Mike Konczal’s views on living wills and regulators’ separate powers. In short, the jury is still out on what difference living wills make.

Otherwise, note the mild whiff of Basel III-type capital ratios — but no American-style Volcker rule, which focuses on limiting types of activity rather than raising capital.

Anyway, back to Labour’s manifesto, which also has a whiff of (Northern) Crock in what appears to be the manifesto’s main statement on too big to fail:

We will ensure greater competition in the banking sector, breaking up those banks in which the Government currently has a controlling stake. The proposed Office of Fair Trading review into how City markets operate is welcome. We value the role of building societies owned by their customers and the strength and diversity that a healthy mutual sector brings to our financial services, and we will consult on measures to help strengthen the sector. As one option for the disposal of Northern Rock, we will encourage a mutual solution, while ensuring that the sale generates maximum value for money for the taxpayer.

The disposal of the Crock’s asset management arm was previously trailed in the 2010 Budget, by contrast.

Now for a quick comparison of the blue ones’ ideas. Don’t say we’re not balanced here on FT Alphaville.

The Conservatives — they’re the blue ones, we’re fairly sure of that — have said they will introduce a £1bn domestic banking levy before pushing for a global one at the next big G20 summit in November. The £1bn from banks will fund a tax break for getting married, apparently. Yes. We don’t understand either.

The blues have also pledged to sell off government shares in the bailed-out banks RBS and Lloyds early next year.

Ah, politics.

Still, as the vultures hover over the UK’s fiscal deficit and sovereign debt, no doubt this bit of the manifesto was of more interest to Messrs. Fitch, Moody’s, and Standard and Poor’s:

We will not raise the basic, higher and new top rates of tax in the next Parliament and we renew our pledge not to extend VAT to food, children’s clothes, books, newspapers and public transport fares. We will maintain tax credits, not cut them. And we have made our choice to protect frontline investment in childcare and schools, the NHS and policing.

Well — choices have consequences.

Related links:
Any new policies in the Labour manifesto? – FT Westminster
Financial reform checklist – FT Alphaville
Tabulating financial reform, Darling – FT Alphaville