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| Banks may groan – but Andrew Tyrie is right to launch a new inquiry Banks may groan – but Andrew Tyrie is right to launch a new inquiry | |
| (about 1 hour later) | |
| It’s been ages – actually only three years – since the last parliamentary inquiry into the banking industry, but here comes the tireless Andrew Tyrie with another. The Treasury select committee is to ask whether the revamped capital rules, supported by arrangements to wind down failing banks, are up to the job. Taxpayers are supposed to be protected in another 2008-style crisis. Would they be? | It’s been ages – actually only three years – since the last parliamentary inquiry into the banking industry, but here comes the tireless Andrew Tyrie with another. The Treasury select committee is to ask whether the revamped capital rules, supported by arrangements to wind down failing banks, are up to the job. Taxpayers are supposed to be protected in another 2008-style crisis. Would they be? |
| A collective groan, one suspects, will have passed across the banking sector at news of this inquiry. The so-called capital and resolution regime, after years of debate and fine-tuning, is supposed to be set in stone. The regulators perform stress tests on the big institutions every year; and the banks’ role is to get on with the job of reorganising their operations to fit the new ringfenced model while reordering their capital structures to contain the correct portion of instruments capable of absorbing losses. | A collective groan, one suspects, will have passed across the banking sector at news of this inquiry. The so-called capital and resolution regime, after years of debate and fine-tuning, is supposed to be set in stone. The regulators perform stress tests on the big institutions every year; and the banks’ role is to get on with the job of reorganising their operations to fit the new ringfenced model while reordering their capital structures to contain the correct portion of instruments capable of absorbing losses. |
| Yet there are at least three reasons why Tyrie is right to have a prod. First, Sir John Vickers, one of the architects of ringfencing, is not convinced that the banks yet hold enough capital. The Bank of England disagrees, pointing out that the UK brigade has raised £130bn of new equity since the 2008, about twice the level of losses experience in the crisis. But that debate needs to be settled once and for all, preferably before the next crisis arrives. | Yet there are at least three reasons why Tyrie is right to have a prod. First, Sir John Vickers, one of the architects of ringfencing, is not convinced that the banks yet hold enough capital. The Bank of England disagrees, pointing out that the UK brigade has raised £130bn of new equity since the 2008, about twice the level of losses experience in the crisis. But that debate needs to be settled once and for all, preferably before the next crisis arrives. |
| Second, the current crisis in the Italian banking industry is a reminder that talk of state-funded bailouts has not been banished forever, at least in the eurozone. The Italian banks may, in the end, get all their capital from the private sector, but it is not reassuring that there is even room for doubt. UK taxpayers deserve to hear, in detail, how it could never happen again here. | Second, the current crisis in the Italian banking industry is a reminder that talk of state-funded bailouts has not been banished forever, at least in the eurozone. The Italian banks may, in the end, get all their capital from the private sector, but it is not reassuring that there is even room for doubt. UK taxpayers deserve to hear, in detail, how it could never happen again here. |
| Third, Royal Bank of Scotland is still 73% owned by taxpayers. To what degree is the state still on the hook should calamity strike? | Third, Royal Bank of Scotland is still 73% owned by taxpayers. To what degree is the state still on the hook should calamity strike? |
| The select committee, let’s hope, will be reassured. But this is the right moment to ask hard questions. Here’s one for Tyrie to add to his list: given that the ringfencing rules don’t come fully into force until 2019, how would the too-big-to-fail question be addressed before that date? Regulators tend to mutter and obfuscate when the question is put directly. Tyrie could do us all a favour by insisting on clarity. | The select committee, let’s hope, will be reassured. But this is the right moment to ask hard questions. Here’s one for Tyrie to add to his list: given that the ringfencing rules don’t come fully into force until 2019, how would the too-big-to-fail question be addressed before that date? Regulators tend to mutter and obfuscate when the question is put directly. Tyrie could do us all a favour by insisting on clarity. |
| Drax fired up after EU nod | Drax fired up after EU nod |
| It is only a slight exaggeration to say that Drax Group had bet the farm on winning EU state-aid approval to convert a third coal-burning unit to run on wood pellets. Without a thumbs-up, Drax would not have been able to afford its planned corporate reinvention via the £340m purchase of Opus Energy, a supply business serving small and medium-sized businesses. That deal, unveiled earlier this month, was conditional on Brussels coming good. | It is only a slight exaggeration to say that Drax Group had bet the farm on winning EU state-aid approval to convert a third coal-burning unit to run on wood pellets. Without a thumbs-up, Drax would not have been able to afford its planned corporate reinvention via the £340m purchase of Opus Energy, a supply business serving small and medium-sized businesses. That deal, unveiled earlier this month, was conditional on Brussels coming good. |
| There was relief all round, then, that EU approval arrived, just as the long-serving chief executive, Dorothy Thompson, predicted. The handout may only be a last hurrah for biomass subsidies since the last UK government made clear its preference for offshore wind in the renewables stakes. But there’s nothing like the sight of guaranteed income – Drax will get £100 a megawatt hour at the converted unit – to lift an energy generator’s spirits. Drax’s shares rose 8% and have now improved by a quarter since the Opus announcement. | There was relief all round, then, that EU approval arrived, just as the long-serving chief executive, Dorothy Thompson, predicted. The handout may only be a last hurrah for biomass subsidies since the last UK government made clear its preference for offshore wind in the renewables stakes. But there’s nothing like the sight of guaranteed income – Drax will get £100 a megawatt hour at the converted unit – to lift an energy generator’s spirits. Drax’s shares rose 8% and have now improved by a quarter since the Opus announcement. |
| Justified? Yes, probably. A month ago, Drax, the UK’s largest power station, seemed destined to become an exercise in managed decline. Now “retooling for a post-coal future” – the clunky corporate slogan – may mean something tangible. Aside from coal and biomass, Drax will have a beefed-up supply business plus development sites to get into gas-fired stations one day. | Justified? Yes, probably. A month ago, Drax, the UK’s largest power station, seemed destined to become an exercise in managed decline. Now “retooling for a post-coal future” – the clunky corporate slogan – may mean something tangible. Aside from coal and biomass, Drax will have a beefed-up supply business plus development sites to get into gas-fired stations one day. |
| It is an odd collection of assets that one probably wouldn’t design from scratch. But, yes, given Drax’s turbulent history, one can call it a sensible diversification of risk. | It is an odd collection of assets that one probably wouldn’t design from scratch. But, yes, given Drax’s turbulent history, one can call it a sensible diversification of risk. |
| Apple’s rotten jibe at Vestager | Apple’s rotten jibe at Vestager |
| The great EU versus Apple and Ireland tax battle will be fought on facts, in particular the right of Brussels’ competition commissioner to intervene in the tax affairs of an EU member state. The legal scrap will take years. | The great EU versus Apple and Ireland tax battle will be fought on facts, in particular the right of Brussels’ competition commissioner to intervene in the tax affairs of an EU member state. The legal scrap will take years. |
| In the meantime, though, note Apple’s petulant line about why it thinks it found itself in the sights of Margrethe Vestager. The Danish EU commissioner wanted a target that “generates lots of headlines”, claims the US technology company. This is self-regarding nonsense. When the sum at stake is €13bn (£10.8bn) in allegedly unpaid taxes, Vestager would be failing in her job if she didn’t act. | In the meantime, though, note Apple’s petulant line about why it thinks it found itself in the sights of Margrethe Vestager. The Danish EU commissioner wanted a target that “generates lots of headlines”, claims the US technology company. This is self-regarding nonsense. When the sum at stake is €13bn (£10.8bn) in allegedly unpaid taxes, Vestager would be failing in her job if she didn’t act. |