Banks and a lack of trust

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GEORGE Osborne was never going to please everyone with his proposals to implement the Vickers report and break up the banks in order, hopefully, to prevent a repeat of the credit crunch.

The banks complain that splitting up their retail and investment arms could cost £7bn and further stall the recovery while taxpayers are bemused that the changes will not apply until 2019. Why the delay if they’re so merited?

The Chancellor’s difficulties do not end here. As the transfer of HBOS into state ownership demonstrated, the regulatory system still needs to be robust – a point forcibly made yesterday by Mr Osborne’s predecessor Alistair Darling who brings some much-needed gravitas to economic proceedings.

In many respects, judgments cannot be made now about the merits of the Government’s reforms – the ultimate test is whether another banking crisis can be averted both before, and after, 2019.

Yet there is still a contradiction at the heart of the country that the Chancellor has to reconcile if Britain’s growth prospects are to improve.

Mike Ellis, a former director of HBOS and Skipton Building Society’s current chairman, argues in today’s newspaper that “banker bashing” must end.

Many from his sector will contend that Mr Osborne’s statement falls into this category, though the Lib Dems – and a majority of taxpayers – argue that the issue of bonuses has still to be addressed.

However, the key to growth remain banks having sufficient confidence to offer loans to small companies that have sound business plans. The public certainly wants this. And so, too, does every politician. Yet, again, it is a question of viability – banks are having to strengthen their balance sheets and the great unknown remains the Eurozone crisis.

In that sense, Mr Ellis is right when he says there needs to be a more constructive dialogue between the Government, the banking sector and taxpayers that looks to rebuild the trust that was shattered in 2008.

Yet it is difficult to see how that will happen when the Government and taxpayers still have so much disdain for the banks, and at a time when the latter has little confidence in the motives of Ministers.