The banking reform debate

The debate over banking reform raged yesterday, after business secretary Vince Cable criticised the banks for opposing the potential reforms.

The Independent Commission on Banking, which was created in June 2010 and headed up by Sir John Vickers, has been asked to consider reforms to the UK banking industry to promote financial stability and competition; its recommendations are due to be released on 12 September 2011.

The Commission’s Interim Report was published in April 2011, and recognises the part that banks had to play in the financial crisis that began in 2007.

A question it raised was whether there should be a form of separation between UK retail banking and wholesale and investment banking, while the issue of competition was also raised.

However, business and banking groups have voiced concerns that any reforms may be detrimental given the current state of the economy.

John Cridland, director general at the CBI told Radio 4’s Today programme yesterday that, “What’s happened since Vickers produced his interim report before the summer is that we’ve had a radical slowdown in the world economy.

“And we’re going to have a major problem if growth stagnates and at that point my businesses trying to get cash from their banks is critical and anything which makes it harder for the banks to keep the wheels of the economy well oiled is not good timing.”

Late last month the British Bankers’ Association (BBA) echoed these concerns as chief executive Angela Knight said: “Whatever the conclusions of the UK’s Independent Commission on Banking, there is general agreement that they will be significantly costly and have an impact on lending.”

Reports today suggest that any reforms that are proposed may not be implemented until after the 2015 election.