Sir John Vickers’ Independent Commission on Banking reports today, having essentially been given a remit of ensuring the events of three years ago are not repeated. But, sadly, it seems the Commission’s proposals address the wrong question in the wrong way.

The heart of Sir John’s thesis is that retail banking and investment banking are ring-fenced or “firewalled”. This reflects the prevailing – and inaccurate – view that some banking is essentially safe and some inherently risky. The day-to-day banking operations that most of us mere mortals engage in – having our salary paid into a current account, withdrawing cash from hole-in-the-wall machines, paying our monthly bills and mortgage by direct debit - are the supposedly safe, “retail” side of banking. The more esoteric, and profitable, activities are the supposedly dangerous “investment” banking – often characterised by populist politicians as “casino banking”. The impression given is that the hard earned cash of the British people is being gambled on the spins of roulette wheels. If it comes up black, the bankers make a fortune. If it comes up red, the taxpayer bails them out.

But this is a grossly simplistic view of how banking works. All forms of banking involve risk. Every mortgage agreed, every personal overdraft authorised, every line of credit extended to every small business (all examples of the supposedly safe, retail side of banking) carries a danger that repayment will not be forthcoming. Northern Rock was, of course, a retail bank that went bust.

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