Banking: Ring-fencing is not the way forward

Association of Corporate Treasurers

Association of Corporate Treasurers

A warning going straight to the point has been released by the Association of Corporate Treasurers (ACT) that says the International Commission on Banking may ruin growth in the economy and job creation if its final set of proposals are too restricted. The ACT are a group which represents finance directors and treasurers from the FTSE 100 and across the UK.

Domino effect on economic growth

The former finance director of Cadbury Schw-eppes’ global confectionary arm, John Grout has said: “If the ICB says it’s going to firmly segregate wholesale banking from retail, how will that money get across the barrier?”

He went on to state that the members of the ACT were after wholesale deposits and borrowing to be allowed on both sides of any ring-fence. He warned that access to funds would indeed get narrower and the cost of borrowing would rise, and to compound the issue there would be a domino effect on economic growth.

The concern is, Mr Grout has said, that if the rise is just in cost then companies will no doubt adapt. But like everything to cope with a rise they will have to reduce expenditure somewhere else and the worry is that this reduction might be seen in production or even employment.

“You need to make the rules as straightforward as possible and let banks compete”

If you are a strong international company then borrowing is a possibility and this can be done by borrowing through bonds. Which can be done when the debt markets are stable but for those companies that do not have this as an option they will unfortunately be affected.

Stuart Gulliver, HSBC chief executive, has also warned that the strategy being considered by the ICB could in fact be a big problem to UK corporate lending business, which is a view shared by the ACT.

“You need to make the rules as straightforward as possible and let banks compete. If we have regulatory arbitrage and people try to create national champions that won’t necessarily make the banking system any safer” said John Winter, chief executive of Barclays corporate.

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