FINANCIAL services regulations aren’t like London buses, where you wait around for ages and then three come along at once. There’s no waiting around, and they come by the busload all the time.
So far this week, we’ve had Ed Miliband threatening to break up the banks, and then the EU’s Liikanen report calling for the ring-fencing of risky banking activities. The Treasury Select Committee is just starting scrutiny of the Banking Reform Bill, which will implement the Vickers reforms to ring-fence the less risky activities. The Bank of England is sharpening up its macroprudential toolkit, and the Financial Services Authority is being split up. Across the EU, there is feverish activity to create banking union (supposedly by Christmas). Further away from the headlines, but just as far-reaching for banks, Brussels is pressing hard on its Recovery and Resolution directive to sort out failing banks (on top of the plans already brought in by the UK government), and nailing down the details of the Capital Requirements directive IV, Markets in Financial Instruments directive II… You get the idea.
It’s no surprise that just about the only growth activity within banks is their regulatory departments. EU officials are keen to claim that no activity in banks is being left unregulated (surely not the toilet breaks?). Many banks also have to cope with the foot-high US legislation called Dodd-Frank.
Many measures make sense – we had massive regulatory failure, and we need a massive regulatory overhaul – but there is a danger in every level of government trying to do every reform at once. You end up with regulatory indigestion. Officials openly admit they don’t understand the legislation they are drafting; MEPs complain about the impossibility of staying up to speed on all their dossiers; banks don’t have time to work out the unintended consequences for their customers – including households and businesses. There is concern in the City and Westminster about how all the different bits of cross-cutting regulations affect each other. How will Liikanen affect Vickers? How will banking union affect recovery and resolution plans? This might all seem technical, but it is not just a headache for bankers charged with implementing reforms. It causes uncertainty across an industry vital for driving economic growth.
This is a once-in-a-generation change. No industry has gone through such wide-reaching and rapid regulatory reform. Policymakers privately admit that regulatory over-reaction is politically inevitable, so are resigned to it.
So I have a radical suggestion. How about finding out whether all the reforms that have already been introduced, or are being introduced, actually do what they are intended to do? We have to get this right, because getting it wrong could seriously damage the economy and destroy jobs. If we have less haste and more speed, we’re more likely to get to where we all want to go: a stable, customer-focused banking system capable of regaining public trust.
Anthony Browne is chief executive of the British Bankers’ Association.