By Jim Pickard, Political Correspondent Published: January 24 2010 23:12 | Last updated: January 24 2010 23:12
Boris Johnson has fired a warning shot across the bows of fellow Conservative George Osborne by signalling that he does not back US plans to reshape the banking industry.
Mr Johnson, the London mayor, had “instinctive” reservations about any government trying to determine the size of private companies, he said
His position contrasts with that of Mr Osborne, shadow chancellor, who has expressed enthusiasm for following the US reforms, announced last week by Barack Obama, US president, as long as they are part of an international agreement.
The intervention comes as Lord Myners, City minister, prepares to host a meeting at 11 Downing Street on Monday, attended by a US Treasury official and representatives from other G7 nations and the IMF, Bank of England and FSA, to discuss different proposals for “de-risking” global finance.
“If the aim [of the US reforms] is to reduce the size of institutions, given that banking is part of the most successful and dynamic industry in London, Boris is even more anxious ... and would need to be convinced,” the mayor’s spokesman said.
Mr Johnson, who has emerged as the City’s political champion, also predicted that the reforms, which would stop retail banks doing proprietary trading, might not be workable. “It is hard to know what [Obama] means when he says he wants to stop retail banks doing proprietary trading ‘unless it is necessary for customer services’,” he said. “That seems like a large loophole.”
The comments came as Alistair Darling, the chancellor, reinforced government reservations about Mr Obama’s announcement.
In an interview with the Sunday Times, the chancellor repeated his argument that the credit crunch was not purely down to banks’ structural architecture. The failure of Lehman Brothers had threatened the global economy even though it had no retail deposits.
“You could end up dividing institutions and making them separate legal entities, but that isn’t the point,” he said. “The point is the connectivity between them.”
On Friday, Lord Myners damped expectation of the UK following suit, saying: “He [Obama] is developing a solution to what he sees as the American issues; we’ve already taken the necessary action.”
The Treasury’s formal response is that it will consider the US proposals while pursuing its own initiatives. Among measures to be discussed at Lord Myners’ meeting is a global insurance fund or a “Tobin tax”. It is the first formal opportunity for British ministers and officials to grill the US on its plans.
The City is, meanwhile, studying the stance of the Conservatives in anticipation that they could form the next government.
On Friday, the party was forced to deny softening its position after clarifying it would only implement the Obama proposals in the UK if they were part of an international agreement.
Mr Osborne had said the night before the US proposals needed to be brought in and that Labour looked “isolated” for not backing them fully. However, the Conservative party’s official position is more subtle. Mr Osborne believes there is a “case” for separating risky investment banking activities from retail banking, but that it would not be sensible to do this unilaterally.
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