Cameron's 'day of reckoning' for bankers dismissed as damp squib

For more than two years Britain has been waiting for what David Cameron said in his 2008 conference speech would be a "day of reckoning" for bankers.

Yesterday – with the taxpayer on the hook for up to £1 trillion for bailouts, credit insurance and other aid to banks – it finally arrived.

But the City has already dismissed the Coalition's Independent Commission on Banking as "12 months of hot air". The Business Secretary, Vince Cable, may have railed against "spivs in pinstripes" but some of London's most senior bankers privately regard the Commission's threat of a break-up as little more than PR posturing. Said one: "We'll play our part but it's not something we're really worrying about. We don't believe that Britain will go and destroy one of its most important industries."

Just to ram home the point, banks including HSBC, Standard Chartered and Barclays have already threatened to quit Britain if the Commission does recommend that the Government moves to break them up or limit them to "narrow banking" by forcing them to spin off "casino-style" financial trading operations.

The "hot air" comment was made by Ian Gordon, one of the City's most respected banking analysts. He admitted the Commission would create some short-term uncertainty for the banks, but added: "The ICB has published 64 pages of fairly predictable stuff in today's 'issues paper'. Its final report is due by September 2011, with 12 months of noise set to follow in the intervening period." From the left, there was similar disdain. Gavin Hayes, general secretary of the Compass think-tank, said: "This is a damp squib. The British people demand not just rhetoric from their politicians, they want to see action. David Cameron talked of a day of reckoning for bankers at the height of the financial crisis. Now he is Prime Minister he has delivered a year of rhetoric with no concrete plans or action."

Sir John Vickers, chairman of the Commission, also dashed hopes that bankers' bonuses would be examined, saying: "I think it is unlikely that we would be looking directly at that." He insisted "all options are open" including a break-up of the banks or moves to force them to separate retail banking and "casino-style" investment banking. Less radical options include banning just the most risky activities or imposing capital surcharges on those engaging in them.

The concentration of 88 per cent of British deposits in just six banks compared to France, where 88 per cent is held by 10, Germany, where the top seven account for 68 per cent or the US, where the top eight banks have just 35 per cent, will also be examined.

And Sir John criticised the threats by banks to move abroad: "Sometimes I wonder if people consider how sharp a conflict between the interests of banks and the wider public they are suggesting. It is in banks' interest for the system to be safer."

However critics have noted that the banking industry has already given its response to the Commission by appointing two high-profile bankers from risky investment banking operations as their chief executives, where they will add the oversight of everyday deposit-taking to financial trading operations.

Bob Diamond, the head of investment banking at Barclays Capital, will take over from John Varley as chief executive of Barclays next year, while HSBC is to appoint Stuart Gulliver, who holds a similar position, to replace Michael Geoghegan after a brief but bitter civil war at the top of bank.

Andrew Murray, partner at London law firm Bargate Murray, said: "Bob Diamond becoming the new chief executive of Barclays may put a spanner in the works of any plan of the Independent Commission on Banking recommending that investment and retail banks be split up.

"The promotion of Mr Diamond has been interpreted as an aggressive pre-emptive strike against the ICB, and with industry lobbying and repetitive scare stories of bankers leaving in droves it is likely that such a proposal would not come to fruition. It is bankers' bonuses that need to be addressed now, not a possible recommendation which is to be published next year." Further evidence of the banking industry's relaxed view of the Commission came in its responses to the "issues paper" yesterday.

Stephen Hester, chief executive of Royal Bank of Scotland, said: "We welcome the thoughtful and thorough approach signalled today by the banking commission. We see competitive markets as a good thing and, as shown in our own radical restructuring and recovery efforts, embrace the need for banks to operate more safely than before the crisis."

Those hoping that Clare Spottiswoode, the former gas industry watchdog, would at least act as a champion of the consumer on the commission were disappointed.

Ms Spottiswoode, who took on the insurer Aviva, said: "I'm not here as the consumer's friend. My experience is more in competition. We will all come at this with an open mind. We are here to look at evidence."