By Max Clarke
The Independent Commission on Banking’s final report has been published today (Monday), outlining a series of measures intended to boost competition and transparency within the UK’s powerful banking sector, and to stimulate affordable lending to businesses for the benefit of the broader UK economy.
Whilst the need for reform in the UK’s financial market has widely been recognised, the scope and depth of the reforms outlined in the final report have made analysts cautious- particularly as the UK is entering reform alone. New regulation to boost stability in the UK may make UK banks less competitive with less regulated international banks.
Ring fencing in particular- the practice of separating banks’ retail operations from the often higher risk and more lucrative investment arms- has been the subject of fierce debate, with its advocates deeming it a practical way of protecting savings from the whims of financial markets, whilst its opponents say it will increase the cost of banking still further, further hindering economic growth.
“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,” commented Dr. Neil Bentley, Deputy Director-General of the Confederation of British Industry.
“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.”
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