Matthew Oakeshott’s departure as a Liberal Democrat spokesman for criticising the ‘Project Merlin’ deal with the banks over bonuses and the like may have got the headlines, but the real story is revealed by Anthony Hilton in the Evening Standard – all the members of the Commission threatened to resign in protest at government interference with their work.
The Government offered to emasculate the Independent Commission on Banking as it tried to strike a deal on bank bonuses a few weeks ago. I am told it backed off only when Sir John Vickers, chairman of the inquiry, and his entire committee, Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf threatened to resign…
It has now emerged … that the chief reason the banks took part [in Project Merlin] was to lift the threat that Vickers’s commission would recommend a major restructuring of the banking industry which would have the potential fundamentally to alter how they do business and where they make their money.
The views previously expressed by members of the Independent Commission on Banking have already given a pretty clear indication that it will recommend radical reform to the way banking is run in Britain – an outcome that Liberal Democrats inside and outside of government have been pushing for and without having a meeting of minds with George Osborne on the topic.
That the banks tried to head off any such recommendations – and failed – reinforces the likelihood that the Commission will make radical recommendations. That will be unpopular with some of the largest banks yet also (and in part as a result) be politically extremely difficult for the government not to act on, especially as top regulator Lord Turner is also continuing to speak out in public in favour of major changes.