The Independent Commission on Banking has come under fierce criticism from the Confederation of British Industry (CBI) for its proposed
break-up of bank’s investment and retail divisions.
The UK government-appointed Commission
recommended a ring-fencing of UK banks in April and also demanded
that banks hold 10% of their capital against assets – proposals
which it argued would shelter the retail banking units against the
failure of the investment units in another financial crisis.
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But on the last day for responses to the
Commission’s policies, the director-general of the lobby group for UK businesses, John Cridland,
voiced doubt over the commission’s recommendations, saying:
“We do not believe the Commission has made a
sufficiently strong case that the ring-fencing proposals will
achieve their objectives. They should not proceed with the idea
unless it stands up to a rigorous cost-benefit analysis.”
Cridland: “ICB proposals could lead to greater
instability”
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By GlobalDataCridland claimed it was “not clear” that the
current proposals would spur a financial recovery of the banking
system, arguing that the ring-fencing proposals “could in fact lead
to greater instability.”
The CBI is demanding a
more flexible approach to ring-fencing.
Cridland said:
“These plans could result in riskier lending
within the ring-fence and cause significant disruption to banks and
businesses outside the ring-fence in the event of a crisis.
“If the Commission does progress with ring-fencing, the scope must
be sufficiently flexible to recognise this. A one-size-fits-all
solution would force all banks to have the same business model,
which would stifle innovation, reduce competition, increase costs
and hamper growth.”
In its submission, the CBI demanded that
capital reforms should be agreed on an international basis to
cancel out a potential damage to UK banks’ level of
competitiveness.
Final proposals due in September
All major UK banks have submitted their
responses already.
The
Commission will reveal its final proposals on 12 September to
the UK government, which will then decide whether to go through
with the proposals or adopt them in part.
The UK chancellor George Osborne is backing
the proposals, which, if implemented, would break up banks’ retail
and investment banking operations so that the latter could be
allowed to fail in another financial crisis.
The the retail banking business could
continue to operate without being affected by the financial
failings of the investment banking unit.
Lloyds Banking Group said in a statement:
“In our view, the evidence set out in this
submission demonstrates that the [Commission] has failed to date to
fully analyse the way competition in these markets [retail and
investment banking] actually takes place; it has also not to date
assessed the impact on that competitive process of the switching
and transparency measures we have proposed.”
