A few random thoughts over the political car crash I think is yet to come over the future of banking.
I'm not convinced there is an effective political counterweight to the banking lobby. Whilst I think you can get somewhere as an interested outsider, most I think in industries you require a bit more specialist knowledge to identify where the real rip-offs are. That takes time and commitment, not just a desire to attack. I personally think much of the Left-leaning attack on the banks is a bit misplaced for this reason, and as such focuses on the wrong issues (ie splitting retail and investment banking) or focuses on some of the right issues but in the wrong way (all the effort on bonus 'reform' has gone into redesigning the structure rather than questioning the fundamentals - do they work, and can we tackle the scale).
As a result I think politicians are also at a bit of a loss to know how to respond. They sense the public resentment but can't quite channel it effectively because there aren't enough people with the knowledge to help them really sort things out, because not enough change sides. I did hope that the crisis would lead to a shake out of City people who would be willing to help the reform effort, but I don't think this has really happened. As a result I think politicians come to put too much weight on 'common sense' arguments against reform - ie they'll fcuk off to Switzerland - and therefore undertake high-profile but low-impact measures (see bonus reform for details).
In my opinion this is going to end badly. The Tories have done a good job on getting the 'cuts are necessary to clear up Labour's mess' narrative stuck in people's minds (especially the minds of media types), but the other bit of popular wisdom I hear increasingly is "the banks made the mess, we're having to pay for it'. This second 'common sense' view is surely going to ring louder and louder as the cuts actually start. And this is going to coincide with the consensus amongst bankers turning to 'we've worn hair shirts for two years, now we want the money again'. See Bob Diamond's Treasury committee appearance for details.
The Government can keep repeating that it has taken 'tough action' on bonuses, by making banks pay them in a different way. But the opinion you hear out there in average punter land is not 'why are bankers' bonuses not properly risk-adjusted and subject to long-term performance criteria?' but 'why the hell are they getting anything'. The City lobby in turn will make its ultimatum offer - you can have a bit of the pie too, though just a small fraction of what we get, otherwise no-one gets anything - and fail to understand why people might reject this generosity.
In reality, we probably only had our foot on the throats of the banks for a short time from the end of 2008 into 2009. Since then they have wriggled free and their lobbying efforts have been so successful of late that they've even convinced the Chancellor to drop pretty limited pay disclosure requirements. Let me just repeat that - the banks have convinced the Chancellor that they shouldn't have to disclose more information about bankers' pay. This isn't about the Govt interfering in how much bankers get paid, just tweaking the rules on what gets reported publicly. And the Govt folded in the face of the banking lobby. How much faith does that give you in their ability to push significant reforms through?
Light the blue touchpaper and retire...