The large UK-based banks have come out this week against the modest regulatory measures proposed in the Independent Commission on Banking’s interim report; in particular measures concerning the fire wall division between retail and investment banking activities.
On Wednesday Standard Chartered were the first to voice their disapproval, reported in City AM, the The Telegraph and The Independent. Soon after the ICB published the 170 responses to its interim report, which it received from various sources including submissions from the major UK banks. This was reported in both The Guardian and The Independent alongside our call for complete separation of retail and investment banking.
Ultimately the big bank’s objections to firewalls boils down to opposition to any regulation that might make banking less profitable. Their reasons for objecting to this they claim are so-called economically responsible ones: that it would harm the British economy, that higher costs would be passed on to customers, and that increased costs of lending will stifle economic activity.
Yet within the current regulatory framework the big banks would already be unprofitable if it were not for unprecedented government support and bank’s customers, tax-payers, who are already paying a massive price for market failure.
The only thing propping up many of their balance sheets being huge tax-payer subsidy in the form of a whole plethora of special sectoral measures such as direct government bailouts, government backed guarantees, low interest rates alongside a policy of quantitative easing. Indeed the National Audit Office estimates that the total support from government to the banking sector in the UK alone totals £850bn. Let’s be under no illusions, this is a highly subsidised sector that has cost the UK economy dear.
That new regulation will constitute a cost and an inconvenience to banks is inevitable and hardly surprising. The banks themselves need to come to terms with the fact that keeping the light-touch status quo, the same regulatory framework that led to the worst banking crisis for over 60 years, is simply not an option.
The simplest structural reform would be complete separation of retail and investment banking as proposed by the Good Banking Forum. This was the reform that was instigated after the Great Depression and helped deliver a secure and stable banking system for over half a century. In light of this opposition to ring fencing could the big banks be more supportive of a complete separation?