Banks: Argument Over Banking Reforms Escalates



Recent news has stated that major banking reforms to safeguard the economy from another financial collapse may not come about until 2015. The government is quickly coming under fire for what some perceive as submitting to the lobbying power of High Street.

It is also said that the banking reform arguments are a point of division in the coalition government, with perceptions of Tory chancellor George Osborne as more bank-friendly than Liberal Democrat business secretary Vince Cable.

Cable Pushes for Rapid Reform

Cable accused banks of lobbying for their own interest under the guise of working for a better economy, and called efforts their efforts to delay banking reforms improve recovery “disingenuous in the extreme.” His position states that continued speculation and worry about the collapse of financial institutions is “all the more reason for grappling with this issue” without a 4-year delay.

Banking expert Philip Augar partially agrees with this, saying that “the banks need reasonable time to prepare” for ringfencing and other reforms to be successful. “However, five years seems too long,” he added.

A major point of contention is the proposed reform to split large financial institutions, keeping the retail division of banks that take deposits from consumers from riskier, investment-driven divisions. This solution is intended to make banking safer for the public, especially savers.

Arguments for Delay

Stuart Frasier of the City of London Corporation stressed the importance of “what is practical for banks” over “political imperatives.”

He stressed the importance of the role of banks in economic recovery and said, “There is only a finite amount of capital available, and if banks have to stump up more, they shouldn’t be rushed.”

Head of the British Banking Association, Angela Knight, agreed: “The emphasis at the moment should be on economic recovery rather than another assult on the banks,” she stated.

The argument is that the proposed banking reforms will raise the cost of capital, as the separated divisions of banks will not be able to add capital to one another.

Some banks have gone beyond lobbying into threatening acting: Barclays and HSCB have both raised speculations that they might relocate parts of their firms outside of the UK if the reforms are too stringent.

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