British business, banking lobbies hit out at possible ring fencing of retail, investment arms
31 Aug 2011
Britain's banking and business lobbies have hit back at a proposal, expected to be formally announced in mid-September by the Independent Commission on Banking (ICB), to 'ring fence' the retail and investment arms of banks.
Sir John Vickers, a former Bank of England interest rate setter, who heads the ICB, is to publish his final report on September 12. The ICB's aim is to suggest structural reforms in the banking sector to reduce risk and to promote competition.
"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," said a statement from the Treasury. "We look forward to receiving the final report on September 12."
Vickers' final report is widely expected to suggest the 'ring fencing' of banks' retail operations with those of their investment banking functions.
"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," said John Cridland, director-general, Confederation of British Industry (CBI), in an interview to a business daily.
Angela Knight, head of the British Bankers' Association (BBA), also issued similar warnings. "We have a high degree of uncertainty, market turbulence and lack of confidence that governments in other countries have got a sufficient grip on their economies," remarks Knight. "We are in for a very difficult autumn. This is, therefore, the time to concentrate on economic recovery and paying back the government and taxpayers. By all means think about new regulation but now is not the time to add that as an overlay with respect to costs, uncertainty or whether it is going to do anything beneficial anyway."
The Liberal Democrats, partners in the government, are pushing for reforms in the banking industry. But George Osborne, the Conservative chancellor, is facing pressure from the industry, which wants him to consider the radical proposals over a much longer time frame and especially not at a time when the recovery process has still not begun.
CBI's Cridland believes implementing the radical reforms at this stage could threaten the economy recovery by halting the flow of credit to businesses. "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 said. "There's an own goal here about to be scored if we get this wrong."
