Plans for a ringfence will hit recovery

THE UK’s £2.5 trillion bank lending market will shrink and more pressure will be piled on small businesses if the government ringfences investment banking operations from retail arms, it has been warned.

The Association of Corporate Treasurers (ACT), which represents finance directors and treasurers from the FTSE 100 and elsewhere, yesterday said the nation’s economic recovery could be harmed if the Independent Commission on Banking (ICB) recommends strict “ringfencing”.

John Grout, ACT policy director, said he was worried that firms would offset any increase in the cost of borrowing by reducing costs elsewhere, hitting jobs and production.

Grout, a former Cadbury Schw-eppes executive, said ACT members want wholesale deposits and borrowing to be permitted on both sides of any ringfence, to avoid access to funds narrowing.

The ACT is also concerned about the effect of the ICB findings on small and medium-sized enterprises.