The Independent Commission on Banking, chaired by Sir John Vickers, is due to publish its final report next month into ho the UK banking sector could be restructured “to promote financial stability and competition”, according to its own terms of reference.
Angela Knight, head of the British Bankers’ Association (BBA) says that first and foremost, the UK’s efforts must be focused on economic recovery, suggesting: “This means allowing the banks to finance the recovery first, pay back the tax payer next, and only then turn to further regulatory change. If more regulation remains at the top of the list then this will only have the effect of risking the recovery which is so essential to our future.”
John Cridland, director general of the CBI, went one stage further in his criticism of some of the proposals. In an interview with the Financial Times, he described proposals to ring-fence British banks’ retail arms as “barking mad”.
“Taking action at this moment – this moment of growth peril, which weakens the ability of banks in Britain to provide the finance that businesses need to grow – is just barking mad,” he said.
“We don’t want to force some of our remaining world class British companies to shift away from a focus on the UK because the rules have been set unilaterally in the UK,” he went on. “There’s an own goal here about to be scored if we get this wrong.”
The interim report produced by the Commission in April allowed consultation on a number of issues broadly under the headings of making banks safer while maintaining their competitiveness. The next report, due in September, will look at how banks can better absorb losses, reduce the costs should a bank need to be bailed out in the future, as well as curbing incentives for excessive risk taking.