Bad City regulation may hit growth and cost jobs

 
Tim Wallace
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MESSY and uncoordinated financial regulation risks stifling the industry, slowing the economy and costing tens of thousands of British jobs, analysts at PwC warn in a report out today.

The analysts fear conflicting aims in regulation, for instance pushing banks to both build up capital levels and to lend more at the same time undermines the stability of the new financial regime and confuses banks and their customers.

They also warn that banks have been hurt so much by recent legal cases that they are too risk averse in product development, withdrawing perfectly good services from the market and holding back from innovating and creating new services.

“Nobody is looking at the overall view of where to take the sector, looking at the aggregate impact of regulation and policies,” said PwC’s Nick Forrest. “In the short-term capital ratios are constraining bank lending and having a broader impact on the economy. And on the risk side we have moved into a very risk-averse environment which may not foster innovation, which could hit growth.”

If the economy picks up and regulations are more cohesive, the report predicts another 261,000 jobs could be created – 47,000 in financial services, and 218,000 across the wider economy.

But if growth stays sluggish and the finance sector is constrained by bad policy, it predicts only 12,000 new jobs would be created in the sector.

“The government is determined to create a stronger and safer banking sector that supports the British economy while ensuring that taxpayers’ money will not be used to bail banks out as it has been in the past,” said a Treasury spokesperson.

“The Banking Reform Bill, currently before parliament, will fundamentally reform the structure of the UK banking sector making banks more resilient to shocks, easier to fix when they get into difficulty and reducing the severity of financial crises in the future.”