Vickers speaks out!

The chairman of the Independent Banking Commission (ICB) insisted that rather than being seen as a warning against his proposals, the downgrades should be seen as \”a natural reflection of the taxpayer getting one step further off the hook\”.

Last week Moody\’s cut the ratings of 12 British lenders, including Royal Bank of Scotland and Lloyds Banking Group, saying that the ICB\’s report was \”credit-negative for bond holders\”.

Quite. The downgrade was entirely as a result of changes in the government guarantee on offer to the banks.

Yes, this does make things more dangerous for bondholders: it also reduces moral hazard and the implicit subsidy provided by taxpayers to bank shareholders.

This is of course exactly what several people have been arguing for. Strange that those arguing for these things immediately stated that the downgrade was Armageddon really.

1 thought on “Vickers speaks out!”

  1. Including one Richard J Murphy, who wrote two blogs in which he denied that the downgrade was for the reasons that Moody’s said and insisted that it was because those banks and building societies were all highly risky and about to fail. He also claimed that the reduction in the government guarantee meant that FSCS insurance was no longer safe. Talking up a totally unnecessary run on banks?

Leave a Reply

Your email address will not be published. Required fields are marked *