The Confederation of British Industry (CBI) – the UK’s leading business organisation – has stated that much more work is needed to ensure the planned changes stimulate business growth, job creation and economic recovery for the UK.
According to an official CBI statement, “changes which significantly increase costs and create more instability help no-one”.
Businesses need more stability in the banking sector and recognise that this comes at a price, but much remains to be done to demonstrate that the balance between the costs and benefits of the proposed changes is a positive one.
Companies see real value in the universal banking model, in terms of integrated services as well as being able to spread financial and operational risk, so do not want to see any separation of retail and wholesale banking.
Increasing competition in the banking sector is important for both retail and business customers, but current ring-fencing proposals may unintentionally reduce competition in the market.
Reform must support “business growth and job creation”
John Cridland, the CBI’s director-general, said: “It’s crucial to the UK’s economic recovery that banking reforms support business growth and job creation. Businesses want greater stability in the financial system, but it’s not clear that the current ring-fencing proposals will deliver this, and could in fact lead to greater instability.”
Cridland added: “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. All banks have unique business and funding models, so if the Independent Commission on Banking (ICB) 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.”
Continuing his response, Cridland commented: “Any banking reforms need to be agreed internationally to avoid damaging the UK’s position as a leading global financial centre. We must not put British businesses at a competitive disadvantage on the global stage.”
On ring-fencing and stability, the CBI said more work was needed to show that current plans would not:
If the ICB ultimately decides to proceed with ring-fencing, the scope should be determined through agreement between individual banks and the regulator rather than a blanket solution imposed uniformly, which could lead to greater instability.
A flexible approach, subject to a supervisory judgement by a regulator, would:
Increasing competition across the banking sector
On increasing competition in the banking sector, Cridland added:
“Companies want a highly competitive banking sector to help promote choice in lending and other banking services. They are concerned that the current ICB proposals do not focus sufficiently on driving greater competition and choice in the business banking sector.”
The CBI’s proposals to increase competition for business customers are as follows:
On the ICB’s proposals for retail bank capital requirements, Cridland stated: “Any retail bank capital proposals must be agreed internationally to ensure that smaller UK firms inside the ring-fence, do not face increased lending costs relative to their overseas competitors.”
A dedicated link to the CBI’s full submission to the Independent Commission on Banking can be found below
