FOR SOME time now, the City of London has warned of a “tipping point” – a point in time where the benefits of being based in the UK no longer outweigh the tax and regulatory burden.
Many commentators have dismissed this warning as an empty threat from an industry looking for a return to the pre-crisis status quo.
However, it is now becoming clear that there is a tipping point. Three of the five biggest lending banks in the UK – HSBC Holdings, Barclays and Standard Chartered – have stated they will seek to relocate if the government forces banks to split retail and investment divisions.
Last Friday, the Government’s Independent Banking Commission published an “Issues Paper” outlining the agenda for its year-long investigation into the structure of the British banking system.
Personally, I do not think the Commission will recommend UK-based banks be split up but the idea was included in the “Issues Paper” and thus remains a realistic option.
We must remember that it was not the integrated banks that failed and economic historians have suggested that commercial banks with affiliates are less likely to fail than stand alone commercial banks.
Striking out on our own like this would represent a huge risk – no other major economy has shown anyinclination to follow this path.
Artificially restricting the ability of banks based in the UK to service all of the business needs of their clients then would result in many of these banks moving overseas. This would leave us with fewer jobs and lower tax revenues and would be hugely detrimental to the UK’s future prosperity.
There are better ways to add security and certainty to the financial marketplace and there is a great deal of regulation due to come into force before the Commission announces its results next summer, not least Basel III’s recommendations setting out higher capital and liquidity requirements. But the final recommendations may well surprise us all and it would be very hard for the government to ignore any major proposals put forward by its own Commission.
Speculation is already mounting as to the attitudes of the five individuals on the panel. The Commission must be strong enough to withstand external pressures and must also be prepared to accept that this is not a popularity contest.
It is the responsibility of the banking sector to uphold and, where necessary, to repair its tarnished imagej. Much progress has already been made; it is the job of the Independent Banking Commission to ensure our banking system is structured so it minimises the risks and maximises the benefits to the UK taxpayer.
Nick Anstee is the Lord Mayor of the City of London