Banking reform: The response

 

 

 

Dr Neil Bentley, CBI deputy director-general, said: “The UK is going it alone on ring-fencing, so the Government must rigorously examine how and when to implement these proposals, otherwise it risks damaging businesses and threatening growth. 

 

“The Commission is right to recommend a flexible approach to ring-fencing and suggest a reasonable time frame for implementation. However some of the services that might be prohibited within the ring-fence, such as exchange rate hedging and other risk management products, could increase costs for firms to access critically important financial services.

 

“The proposals on capital requirements are out of step with internationally agreed measures underway so will increase the cost of lending for UK businesses, putting them at a disadvantage to their overseas competitors. 

 

“Companies want greater competition in banking so it’s positive that the Commission has set out measures on making switching much easier and improving price transparency. 

 

“The UK needs a stable and resilient banking system, but it is critical that the Government implements these reforms in a way that supports lending to businesses and helps growth.”

 

 

John Longworth, Director General of the British Chambers of Commerce (BCC), said: “Reforms to the banking system proposed by the Vickers report must be considered in the wider context of economic growth. The government must prioritise enterprise, wealth creation, growth and jobs - a strong, well-capitalised banking sector prepared to lend is vital to achieving this.

 

“We cannot afford to see collateral damage among Britain’s SMEs as a consequence of banking reform. While there is clearly a need to ensure our banking system is robust, we must ensure that new regulations, however desirable in principle, do not inadvertently derail the recovery or hinder businesses’ access to finance.

 

“We support the broad aims of ring-fencing in strengthening the UK’s banking system. Delaying the implementation of ring-fencing until 2019 is a welcome step, given the real concern that it may limit banks’ ability to lend to growing businesses. However, the unilaterally high capital ratios proposed by the report, could weaken growth over the medium-term and damage an industry with good growth prospects where the UK has a comparative advantage.  

 

“The need for more competition in banking services, particularly for SMEs, has to be a major priority. The existing divestments are a welcome step but there is more to be done. Improving competition would mean better terms and conditions for business, and would in time drive down business costs.

 

“The report includes welcome recommendations on improving switching services for customers. If it is easier for businesses to switch between providers, banks will place a premium on good service to SME customers. However, we believe these proposals could go further - for example, allowing businesses to take account numbers when switching between providers.”

 

 

John Walker, national chairman, Federation of Small Businesses, said: "The banking sector cannot be too big to fail as the taxpayer cannot afford another bank bail-out. The Government has a golden opportunity to reform the banking sector and it must stand by the promises that it has made. 

 

"The recommendations that the ICB make must be looked at closely and the Government must act on them as soon as possible and ensure they are completed before the end of the next General Election. The Government must use this once in a lifetime opportunity to make the banking sector safer, more competitive and less burdensome on the taxpayer." 

 

 

Charlie Mullins, founder of Pimlico Plumbers, said: “Given the damage the banks have done to the country during the last decade, what havoc can they wreak in the coming eight years? Especially when they know their days at the gaming tables are numbered – there could be a lot of business casualties in that time. 

 

“What we are proposing seems to amount to continuing to stake a gambling addict who has till 2019 to get his act together, after which we’ll force him to. 

 

“In one breath the Vickers Report is suggesting the banks need time to adapt to this brave new world, but in the next admitting that they probably won’t and rules will be needed to stop them going off the rails again. Surely our own logic suggests there's going to be more wreckage and soon?

 

“Timing aside, I can't agree more with the idea of forcing the ring-fencing of the retail banking operations from the ridiculously risky gambling of the investment arms. 

 

“These guys must be allowed to fail, if failure is where their decisions lead them. Like any other business they need to understand the actual risk of every deal they do. By forcing them to make these changes we are in effect doing them and ourselves a favour.”

 

 

Phil Smith, managing director of Business West said: “Any reforms to the UK banking system must be considered in the wider context of economic growth. The government must prioritise enterprise, wealth creation, growth and jobs, and a strong, well-capitalised banking sector prepared to lend is vital to achieving this. Business West’s recent ‘Barriers to Growth’ survey identified availability of finance and accessing finance as a major issue for business in our area. While there is clearly a need to ensure our banking system is robust, we must ensure that new regulations, however desirable in principle, do not inadvertently derail the fragile recovery.

 

“The UK urgently needs more competition amongst banks lending to SMEs. Greater competition would help to address one of the biggest concerns – the overall cost of credit, which includes SME complaints about the level of fees and conditions over and above the headline rate of lending offered by banks.  Increased competition would also ensure that potential customers are presented with a real choice from a variety of offerings on lending rates, fees, covenant levels, conditions, and service. 

 

“Smaller firms need to be able to switch providers with the greatest possible ease when they receive poor service from their lender, and it will be vital for the Government to make this outcome happen.”

 

 

Noline Matemera of Stephenson Harwood commented: "Collectively, the Client Money and Asset Return (CMAR) means yet another additional regulating reporting obligation for firms.  Whether the CMAR will provide greater overall protection of clients' assets remains to be seen but it will in the short-term focus firms' attention on ensuring effective accounting and reconciliation systems and controls are in place." 

 

 

The British Bankers' Association said: “UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained. The ICB’s recommendations cover the same important issues. Any further reform measures adopted by the UK authorities need to be carefully analysed and compared with those agreed internationally. It is vital that the full impact any further reforms will have on the economy, the recovery and banks’ ability to support their customers in the UK is understood.”

 

 

Institute of Directors director-general Miles Templeman, said: “Many of our members will welcome the most radical reform of the banking system in a generation. The attempts to improve competition in banking will be particularly welcome.

 

“The proposals to ring fence retail operations and increase capital requirements are clearly intended to reduce the fiscal risk from a future financial crisis. However, the proposals only slightly reduce the risk of a future financial crisis. The problem of 'too big to fail' investment banks remains the elephant in the room. There are also doubts about whether these reforms would insulate the UK’s banking system from harm if a major bank failure occurred outside the UK.

 

“There is also considerable uncertainty as to what the impact of the proposals will be on the cost of borrowing for consumers and business. The final report provides some reassurance here, but there can be no doubt that higher capital requirements will push up the cost. The issue is how much.

 

“Other concerns relate to the timing of the implementation. The Commission recommends the changes should be implemented by 2019. We think this is sensible. Monetary growth over the coming years is likely to be very weak and so early implementation of tighter rules on capital would not be helpful. Money supply growth needs to be much stronger than at present before full implementation can be safely carried out.

 

“A final concern relates to the impact of the proposals on the competitiveness of the City and the future of London as the world's leading financial centre. We need to have much greater clarity on this issue before any legislation hits the statute book.”