Sneaky acts show value of debate

This is my comment from the latest Fund Strategy.

Those without the time to read several newspapers may have missed last week’s heated semi-public row within Britain’s elite about reform of the banking system.

Given the importance of the financial sector to Britain’s markets and economy it is an important debate to follow. The spat started when Mervyn King, the governor of the Bank of England, hinted in an interview with the Telegraph that there should be a regulatory divide between high street and investment banking.

Anyone familiar with the workings of the media should be in no doubt that this was not a chance remark. King was getting his retaliation in first before the Independent Commission on Banking issues its interim report on 11 April. The commission is expected to recommend a far less radical division between the two wings of banking.

King’s remarks quickly triggered responses from others. Nick Clegg, the deputy prime minister and leader of the Liberal Democrats, backed the governor in a speech.

The following day the chancellor, George Osborne, made it be known through an aide that he thought the banking commission was heading in the right direction.

Meanwhile, unnamed bankers told the media that they were angry with King’s remarks. Soon afterwards Angela Knight, the chief executive of the British Bankers’ Association, used a Guardian article to argue implicitly against radical reform by suggesting the banking system had already changed fundamentally.

The most important lesson to be drawn from this sorry tale is that it would be far better if the issues were properly debated in public. Parliament should be the main forum for deliberation on such matters. Open discussion, rather than manipulation from behind the scenes, is the best way to tackle difficult challenges.