Don't Break Up Banks or Act in Isolation, Says New CBI Chief
The Confederation of British Industry (CBI) said that ensuring banks can finance a private sector recovery and support future growth should be the UK government’s main consideration when reforming the banking system.
In its submission to the Independent Commission on Banking (ICB) consultation, the UK’s leading business group also stressed that reforms must be globally co-ordinated to maintain and strengthen the UK’s position as an international financial centre. Banking and financial services play a significant role in society, so building a competitive but resilient sector, free from taxpayer support, will be crucial.
John Cridland, the recently-appointed CBI director general, said: “A healthy economy needs a healthy banking system, and the top priority must be financial stability for all. We must strengthen our banks for the future, without relying on the taxpayer. Improving credit flows and providing relevant financial products to businesses will be critical to drive growth and recovery. Financial services in the UK is a world class sector, accounting for around 10% of total economic output, so we must not jeopardise this position by acting in isolation on reforms.”
On the subject of structural reform, Cridland said: “Businesses value integrated services provided by large universal banks, so breaking up existing banks is not the way forward. Instead, structural reform should focus on establishing the necessary capital buffers, having effective recovery and resolution arrangements, and appropriate supervision.”
The submission makes clear that capital and liquidity reforms already underway at a UK, European and global level have and will continue to tighten requirements. Building on this progress, banks need to ensure that adequate capital and liquidity is allocated to individual risks and activities. In addition, the introduction of ‘living wills’ will help separate activity and ensure that core banking services can continue in the event of a crisis.
The CBI also supports the following structural reforms:
On the subject of competition, Cridland said: “For business, having a good relationship with their bank is vital. There needs to be open dialogue to create trust and mutual understanding between both parties. Reducing barriers to entry in the banking sector will encourage diversity in products and services, and more competitive prices. Among the options that should be considered are greater transparency in pricing, making it easier to switch bank accounts, and sharing of branch infrastructure.”
The CBI outlined a number of options that could encourage further competition: