The proposals from the Independent Commission on Banking (ICB) for ‘ringfencing’ retail operations from investment banking may be significantly ‘watered down’ by Prime Minister David Cameron as he fears this may slow down economic growth, the Sunday Telegraph reported.
Cameron had told senior government officials that any proposal from the ICB to demarcate retail and investment banking operations and increase capital requirements needs to be reviewed though he wanted the debate on banking to continue.
“We are not going to pre-empt the ICB. We haven’t seen the final report and will respond once the final report is out in a couple of weeks,” a government spokeswoman said when asked to comment on the report.
Set up after the credit crisis had hit the economy and the banking industry badly, the ICB is set to submit its final report on September 12.
The report will reiterate its previous proposals of separating the retail operations from investment banking so that tax-payers are not exposed to excessive risks.
However, Britain’s four leading banks – HSBC, Barclays and part-nationalised banks Lloyds and RBS have been cautioning against excessive regulations, stating they could harm the economic recovery.
There have been intense media speculations over HSBC and Barclays shifting their headquarters away from London as well, something that both the banks have assiduously rejected.
The ICB has also proposed to increase banks’ core Tier I capital to 10 per cent of Risk Weighted Assets (RWA), a move opposed by bankers since it would make lending to businesses harder for them, affecting their profitability and the country’s economic growth.
The exact model of ringfencing has not been proposed by the ICB since certain banking operations come under both investment banking and retail operations.
While Britain would not wish to be out of sync with the tougher Basel III capital requirements – due for introduction in 2013, reforms may not actually be introduced until after the 2015 general election.
Chancellor George Osborne has supported ICB’s interim ringfencing proposal, while business secretary Vince Cable has demanded complete separation of trading and retail operations.