Where do we stand, five years on from the start of the crisis, on progress towards banking reform? Major advances have been made, but a lot of unfinished business remains, notably on structural reform of banks. Following a stock-take of current reform initiatives, the lecture reviews some economics of public policy towards banks, starting with the rationale for deposit guarantees and lender-of-last-resort support but concentrating on why governments feel compelled to provide solvency support in crisis. It then covers the economics of capital requirements - and loss-absorbency more generally - and examines why the public interest requires much more capital than banks would choose. The role of structural regulation in making banking systems safer is then analysed, in particular forms of separation between retail and investment banking such as ring-fencing (as in current UK reforms) and complete separation between retail and investment banking (as in the US before the repeal of Glass-Steagall). The lecture concludes with some reflections on the wider European policy debate in the light of the Liikanen Report. A central theme of the analysis is that banking reform needs a well-designed combination of policies towards loss-absorbency and structural reform.
Professor Sir John Vickers FBA
Warden of All Souls College, Oxford
About the Speaker:
John Vickers has been Warden of All Souls College, Oxford since 2008. He was Drummond Professor of Politcal Economy at the University of Oxford from 1991 to 2008, Cheif Economist at the Bank of England from 1998 to 2000, and head of the Office of Fair Trading from 2000 to 2005. His publications include Privatisation: an Economic Analysis (1988), Regulatory Reform (1994), and numerous journal articles, mostly on competition and regulation. His work in public policy was recognised by his being knighted in 2005. From 2007 to 2010 he was President of the Royal Economic Society. In 2020-11 he chaired the Independent Commission on Banking to address one of the most challenging policy issues of our era. Legislation is before Parliament to implement the keyrecommendations of its report, especially those concerned with the 'ring-fencing' of retail banking, which have received support from all the UK's major political parties, and generated considerable interest in many other countries. He was elected a Fellow of the British Academy in 1998, and in recognition of his work on banking reform was awarded the British Academy President's Medal in 2012.