UBS ‘rogue’ is a massive boost for Vickers

16th September 2011

In his column today he writes: "Thank you, UBS. As a member of the UK's Commission on Banking, under Sir John Vickers, I could not have asked for a better illustration of the unregulatable risks to which investment banks are exposed than Thursday's announcement of the loss of $2bn in "unauthorised trading". No sane country can allow taxpayers to stand behind such risks."

Actually he sounds a bit cross. He takes on the suggestion that the Vickers report imperils the economy asking can you justify underwriting all sorts of risky investment banking activities in a bid to benefit from a bit more lending from what is only a small part of a bank's activities? He questions suggestions that things can only go wrong when credit is loose and the economy booming, a point that is difficult to resist.

But is this a massive boost for the pro Vickers' camp?

Here's the Telegraph's Jonathon Sibun's take on the issue.

"News that a rogue trader at Swiss lender UBS has lost £1.3bn in a bout of "unauthorised trading" will have bank bosses reaching for the hard stuff. If ever there was an advertisement for splitting retail banks from investment banks, here it is. Looking for an example of casino banking? Voila!"

On the Guardian financial editor Nils Pratley agrees. "If UBS, even after its own disasters and bailout during the banking blow-up of 2007-08, cannot implement effective risk-controls, it is surely not sensible to trust regulators to do their jobs perfectly.

"Equally, it would be absurd to tolerate a situation in which a UK retail bank, after a heavy loss incurred by its in-house investment bank, was obliged to trim essential lending to the UK economy to compensate for traders' bad bets, whether authorised or not.

"Without reform, investment bankers are always likely to win any competition for capital within a broad-based bank. Their business is about bonuses, short-term profits (and losses) and the prospect of instant glory. Retail banking, on the other hand, is lower-paid and involves long-term judgments about risk – but it is vital to the economy. Vickers is right. Let's get those ringfences erected.

The Guardian politics blog makes a less than subtle hint about systemic problems suggesting that rogue traders in an investment bank are just about as ‘rogue' as 'rogue' journalists at a phone hacking tabloid newspaper.

It also quotes at length Sir Peter Tapsell, the Father of the House (the longest serving MP in Parliament). Speaking to the Prime Minister last week, Tapsell said: "Was my right honourable friend taught, at whatever school he happened to attend, that one of the key functions of parliament over the centuries has been to diminish what the historians have called the over-mighty subject.

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