THE UK yesterday took a radical step towards imposing new regulations that will cost banks billions and risk eroding the competitiveness of the City.
The Independent Commission on Banking (ICB) unveiled a report that its chair Sir John Vickers said “goes further” than international regulation.
The ICB says that the reforms will cost banks between £4bn and £7bn a year – a number that lenders claim dramatically underestimates the impact – but will benefit the economy because of greater financial stability.
“It’s good for the City too,” Sir John insisted. “A more stable domestic banking system will underpin, not jeopardise, the UK as a global financial centre.”
Chancellor George Osborne endorsed the report and promised to pass legislation to put it in force this year, with banks given until 2019 to implement the changes fully.
Critics suggested the move, which will see retail banks hived off into separate subsidiaries and forced to treat their investment banking arms as third parties, could in fact exacerbate financial instability.
Clifford Chance partner Simon Gleeson pointed to the risks of mortgage and commercial real estate lending, saying: “The activities of the ring-fenced bank are likely to be riskier than the activities of the wholesale bank.”
Some of the costs will stem from measures that are already due to come into force due to international regulatory changes, such as the imposition of losses on bondholders rather than taxpayers if a bank gets into trouble.
Behind the scenes, several banking sources expressed frustration that the Vickers report “adds a layer of complication” to the existing onslaught of regulation.