Helen Martin: Cost of bank reform is price worth paying

IT seems as if 2011 is drawing to a close with a promise, or at least a declaration, that the banking system will finally be overhauled. Hallelujah! Many of us couldn’t be more delighted.

According to Chancellor George Osborne, responding to the Sir John Vickers banking enquiry, by September 2013 the retail business of banks, which deals with ordinary customers and small or medium business accounts, is to be ring-fenced – protected from the gambling operation that is international and speculative investment. That can only be a good thing.

Mortgages will be harder to get too: no 100 per cent mortgages or crazy self-certification, both of which meant lending too much money to too many people who couldn’t afford the repayments.

And there will be more competition, making it faster and easier to change banks without charge.

In essence, this is all “back to basics” stuff, returning at least part of the banking industry to the way it was in the old days when banks had scruples and were obliged to actually look after their customers.

Right in the firing line is RBS, which is 80 per cent owned by the Government on behalf of the public. So far, it’s shown a pretty poor return having lost £27 billion in value since 2009 when we bailed it out.

And that remains the chink in the armour. Because that bail-out was given more or less unconditionally. Having taken the loot, RBS and other banks simply carried on as they had always done, reducing services, charging more, paying customers less and, of course, handing out millions in bonuses to their own staff. In fact their wage bills have actually gone up by £12bn in the last four years.

What many of us now fear is that despite any changes imposed on the industry, it will continue by economic sleight of hand, to look after itself and pass the costs of all of this restructuring – up to £8bn a year – back to the customer.

Banks have always tried to defend their indefensible behaviour by threatening that too much restriction on practices and bonuses will drive talent away, or by citing the disastrous effects of massive job losses which would be particularly felt in cities such as Edinburgh and London, hugely dependent on financial sector employment.

It takes courage to call their bluff. Most of us don’t understand the intricacies of banking (any more than it would appear our incompetent bankers do).

Sir John Vickers said: “The costs and dangers of unreformed banks are plain for all to see.” True enough. The costs of reforming an industry that has been allowed to get away with unrestrained greed, self-protection and daylight robbery for decades, aren’t so clear.