Bank regulation risks recovery, says Angela Knight

 
Canary Wharf An independent commission has said retail banks should be ring-fenced from investment banks

UK banks need to focus on lending and paying back taxpayers and should not be distracted by more regulation, the head of the British Bankers' Association has said.

Angela Knight said regulatory change could undermine the recovery.

Her comments come ahead of the Independent Commission on Banking's final recommendations, due next month.

The commission has already recommended ring-fencing banks' retail operations from their investment banking arms.

She was joined by John Cridland, director general of the CBI.

"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 to me barking mad," he said in an interview in Tuesday's Financial Times.

Last month, Business Secretary Vince Cable indicated that banks could still be forced to separate entirely their High Street businesses from their investment divisions.

Bank bailouts

"From now on, the UK's efforts must be focused on the economic recovery," Mrs Knight said.

"This means allowing the banks to finance the recovery first, pay back the taxpayer next, and only then turn to further regulatory change.

Analysis

The die - as banks would see it - was cast when in June the chancellor rowed in behind the initial findings of the Independent Commission on Banking on its proposal to partially separate, or ring-fence, High St banking from investment or 'casino' banking.

Banks are livid that that recommendation now looks like a foregone conclusion when the ICB publishes its final report on 12 September.

So in the knowledge that there's little they can do to prevent ring fencing, the BBA is looking to the future and the implementation side of things. It knows that recommendations are a far cry from legislation.

Angela Knight is therefore appealing over the heads of politicians and commission members to Britain Inc, when she says that the banking separation (however partial) should be costed to see what the impact on the wider economy would be. Could it eventually mean that banks would be poorer and have little alternative but to up sticks and move abroad, with those who remain unable to lend to companies anyway?

"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."

The banking commission was set up by the government last June to review the UK banking sector after bailing out some of the UK biggest banks during the financial crisis.

However, the government is under no obligation to implement its recommendations.

"The government set up the ICB to ask the difficult questions that weren't asked before the crisis and this is exactly what the commission is doing," the Treasury said in a statement issued in response to Mrs Knight's comments.

"We look forward to receiving the final report on 12 September."

Higher costs

In its interim report published in April, the commission said that, in the build-up to the crisis, lenders and borrowers took on "excessive and ill-understood risks", and that implicit taxpayer support for the banks encouraged "too much risk-taking".

As a result, it recommended that retail banks should be ring-fenced from investment banks and have their own capital reserves, so they are protected from losses made by traders on stock markets, for example.

It also said that taxpayers should not be liable for future losses, and that depositors should get their money back before creditors.

These measures would lead to additional costs for banks.

Mrs Knight said in the light of the continuing eurozone debt crisis and stock market volatility, the focus for banks should be on the recovery, not on dealing with more regulation.

 

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  • rate this
    -6

    Comment number 313.

    I really have to point out that while it’s easy to blame the banks or government, however we must also take some blame because we all had new cars and new houses on the back of the boom years. Of course now it’s all gone wrong it’s everyone else’s fault but ours. And people will read this and call me all sorts but I am afraid what I have said is true

  • rate this
    -32

    Comment number 256.

    Regulation is the last thing any of our industries need at the moment. Business needs to be allowed to flourish unencumbered by the stagnating weight of gov't interference.

    trying to introduce some marxist system of state control is just stupidity.

  • rate this
    +2

    Comment number 238.

    Not much change needed in Bankiing Operations..Just ensure the Bank you choose,only Invests their own money,takes no risk with your money.If such a Bank does not exist,create one.Your money could be far safer and Investment Bankers a bit more prudent.
    The Status Quo went out the window many months ago..

  • rate this
    -12

    Comment number 234.

    Most writers here really don't appreciate the complexities of regulating the financial systems worldwide. Dead easy to say "regulate!" But different things need monitoring and regulating in different ways. Capital adequacy is just one issue. Country exposure is another. 400 characters is no way enough space even to start so let's just say don't kill off what's left of financial services here.

  • rate this
    +6

    Comment number 211.

    The problem was caused by the banks, well some of it anyway, the real problem is people have been spending more money than they have, so unless we go back to living within our means then the problem is going to happen all over again. It maybe tough to cut down on our spending but if we don’t then financial Armageddon will be knocking on the door

 

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