Proposed reforms to the UK’s banking system should be shelved until after the economy has recovered and taxpayers repaid for bailing out the banks, the British Bankers’ Association (BBA) has warned.Speaking in advance of the publication of the Independent Commission on Banking (ICB) report in a fortnight, Angela Knight, the BBA’s chief executive, said the economy was now more fragile than when the ICB published preliminary recommendations in April.
She also warned that increased regulation would only have the effect of risking the recovery.
The ICB is due to publish a report recommending sweeping changes to the UK’s banking system, with the separation of wholesale and retail banking and ring-fencing of the latter expected to be the key proposal.
The changes are intended to increase stability and competition in the UK banking system, but Knight (pictured) warned that concerns about the possible conclusions of the Commission have been raised by investors, fund managers, commentators and analysts – even by authorities outside the UK.
She said: “The final recommendations must be fully costed – not just for the banks at which they are targeted but also for customers and the economy.
“The final recommendations must show a range of recommendations – with the analysis and underpinning work all presented for scrutiny, with both options and consequences. The ICB must be brave. As so many of the things which it was set up to achieve have already been done by other means, it must be brave enough to say this and brave enough to put to one side proposals which are now not relevant as other steps have been taken.”
The warning comes one month after the Federation of Small Businesses (FSB) called on the ICB to address what it perceived as a lack of competition in UK banking.
The FSB is pressing for state-owned banks to be forced to sell off more branches to stimulate competition, and urged that small and new banks should not be penalised under prudential regulations that require them to hold more capital.
The FSB also warned that the newly created Financial Conduct Authority must be given the powers to investigate and recommend policies that focus on increasing competition.
John Walker, national chairman of the FSB, said: “The lack of competition in the sector is the most important thing that the ICB should focus on in its full report. The lack of competition gives small businesses less choice, and it also means that the cost of finance is more expensive.”