The Confederation of British Industry is urging the government to reconsider plans to dramatically overhaul the banking industry this week, believing that the economy is still too fragile to handle such changes.
The CBI’s director general John Cridland said that ministers would be “barking mad” to go ahead with the planned reforms with the economy in its current state. “Moving too quickly to separate the retail and investment arms of banks, as laid out in plans to be unveiled by the Independent Commission on Banking in two weeks time, could threaten economic recovery by stemming the flow of credit to businesses,” warned Cridland.
Cridland’s comments echo those of Angela Knight, head of the British Bankers Association, and will add to mounting pressure on Chancellor George Osborne to slow down banking reforms. The final report from the ICB, due to be published in a fortnight, is expected to recommend separating banks retail operations from their investment functions.
Once the report is published the Chancellor will decide which reforms to implement and at what pace. Reports suggest that Mr. Osborne is planning drastic ringfencing of banks operations, possibly over an extended period up to 8 years, remaining cautious of the current economic climate.
These reforms have become a sensitive issue for the coalition government; the Lib Dems are strongly opposed to any attempts to slow down changes to the banking industry. Business secretary Vince Cable has stated: “We don’t want to pre-empt the ICB but we don’t see that tremors in the market are any excuse to delay. We need the framework in place as soon as possible so that banks can recover on the right trajectory. We recognise that it can’t be done overnight.”
Cridland has expressed frustration about the amount of politics involved in the reforms, saying that “this was all about safer banks for a safer economy, It wasn’t about politics. Now I get a sense that there’s a bit of ‘we’ll do this for political reasons’.
Those opposed to the reforms argue that any changes should be put on hold until the economy has made a more sufficient recovery and taxpayers have been repaid for the bank bailouts. Angela Knight stated that: “Thias is the time to concentrate on economic recovery and paying back the government and taxpayers. By all means think about new regulation but now is not the time.”
A statement released by the treasury read: “The government set up the ICV in order to ask difficult questions that weren’t asked before the crisis. This is exactly what they are doing and we look forward to receiving the final report on September 12th.”.