The Bankers' Week… The Army Steps In?

In this week’s war to save the Euro politicians have seen most of the action but now the army has broken cover. “The biggest strategic risk facing the UK is economic rather than military,” intoned the UK’s Chief of Defence Staff on Wednesday night. So it’s official: things are really serious. After all as General Sir David Richards said”…managing risk is ultimately what we do and none of us in the armed forces are discomforted by the challenge.”

Has Gen. Richards been reading the Financial Services Authority report into the spectacular 2008 crash of RBS published earlier in the week? Managing risk on the banking front was the FSA’s challenge, which in their report they admitted was too much for them at the time. Reported to cost £7.7 million, the 450 pages of pick and mix explanations of how it all came about provoked media coverage that variously blamed Sir Fred, the government and the FSA itself for at one time deploying  only 4.5 troopers to manage this particular strategic risk.

The European Banking Authority (based in London) seems to be made of sterner stuff than the previous incarnation of the FSA. Its stress tests for European banks have been much tougher than before and the results were announced just before last week’s summit, showing that even Germany’s banks had some work to do. It drew considerable flak from Eurozone banks, Italy’s in particular,  by demanding that European banks raise a further 115 billion euros of capital. Previous estimates of fire power were too low to bolster confidence it said.

But the question of who is regulating what in an increasingly global monetary system is getting very tangled. None of it seems to be making the system any safer.

As we reported just before the EU summit last week the European Central Bank cut interest rates and boosted borrowing by banks in an effort to increase liquidity.  Interbank lending in Europe is already all but frozen with banks preferring to place record amounts with the ECB rather than lend to each other . Some think all this could prompt a new credit crunch which would take the crisis to a new level.

Oh and talking about increasing liquidity, the effectiveness of our very own Bank of England’s efforts at quantitative easing in 2009/10 were called into question this week by the Bank of International Settlements, the Basel based central bank for central bankers. As The Telegraph put it in an explosive mix of metaphors the report suggested that BoE  could be “running out of ammunition to rekindle the recovery.”

And so to the Politicians. What moved  David Cameron to veto EU treaty changes at the end of last week is being endlessly debated in the media. Certainly many City bankers thought he had done them a favour protecting them from a Tobin tax and more. But all in all our PM’s position seems irrelevant in stemming disaster. The Eurozone countries’ plans to stabilise it all seem to have started unravelling already and the future looks grim as summarised neatly in a Reuter’s report.

To add to the PM’s woes, there is a suggestion that Britain should contribute a further £30 billion to bail out the euro via its contributions to the IMF. Plucky Dave is saying no way, we’ve already given the IMF £40 billion for the job.

The news that the PM negotiated his way through the summit with a full bladder has leaked out during the week. This is apparently a favourite technique of his. Could he be planning to use it to help put out the coming firestorm?