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Banking Reform

Published 3rd May 2012 by Rebecca Walker

The Mid Yorkshire Chamber responds to the Chancellor's statement on banking reform.

Banking Reform


On Monday the Chancellor George Osborne laid out plans to reform the financial services sector, following the conclusion of the Vickers Report.  The proposals include the ring-fencing of retail and SME business banking, a strong commitment to capital reserve requirements, further competition in the banking sector and new guidelines to ease the process of switching bank accounts.

 

These are broadly positive measures, and the Mid Yorkshire Chamber welcomes this attempt to protect the economy from the sector’s behavioural excesses, which precipitated the 2008 Financial Crisis.  New regulation in this area may be necessary to effectively monitor and temper the risks inherent to this industry.  As the Chancellor stated, the cost of new primary and secondary legislation outweighs the cost of insolvencies, and it is important the correct balance is reached.

 

However, while the Chamber broadly supports the aims of banking reform, it is essential that the impact on business, and lending to businesses, be minimal.  Net bank lending to businesses is falling, a trend that must be reversed to give businesses confidence to grow.

 

In the context of the Eurozone Debt Crisis, low interbank lending and unilaterally high capital reserve requirements, there is some concern that the ring-fencing of retail banking may further reduce the sector’s ability to lend to new businesses.  It is essential therefore that improving competition in the banking sector be the key priority of any reforms.  Greater competition would lead to better lending terms and more availability of capital for small businesses.


Head of Policy Steven Leigh commented:

“We are pleased to see a commitment to strengthen the UK’s banking system and are hopeful that these measures will provide greater competition and improved terms for the UKs small and medium sized businesses.  It is important that the implementation of new regulation does not reduce the availability of capital so the 2019 timescale for ring-fencing provides a welcome grace period.  It is absolutely imperative that in this challenging environment more is done to ease credit availability for SMEs.  With this in mind we call on the Government to pursue real progress on the promises made in Project Merlin, to ensure the banks deliver in this area.”


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