George Osborne is a flip-flop chancellor – but on all the wrong policies. One area where a u-turn would be welcome is on the implementation of the Vickers report. However, In his Mansion House speech tonight, he will signal an intention to plough on as before – accepting both the good and the bad.
Let’s deal with Vickers’ better proposals first. The chancellor would be right to implement bail-in procedures and depositor preference. It is essential to have a legal framework in which banks can be wound up without bringing down the rest of the financial system. It is difficult to see that being possible without banks’ bondholders having their capital turned into equity in the event of a bank failure. Furthermore, if depositors are to be insured, then taxpayers will end up bailing out bondholders unless their capital is clearly at risk before depositors start to lose money – this was the Irish experience.
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