Sober model of banking to return to City

CHANGES to the regulatory regime will see the City return to the style of &ldquo;boring&rdquo; banking last seen before the &nbsp;period of market liberalisation of the 1980s, according to a report released yesterday.<br /><br />Rod Logan, financial services analyst at forecasting company Datamonitor, said the credit crunch would cause a regulatory backlash that could hamper the British economy on its road to recovery.<br /><br />&ldquo;Regulators are poised to impose some stringent rules on financial institutions, which are intended to prevent a repeat of the current banking crisis,&rdquo; he said.<br /><br />&ldquo;The curbs on banking activity will reduce the level of lending, which will impede the ability of the economy to fully recover,&rdquo; he added.<br /><br />Banks&rsquo; reluctance to lend is also being echoed by a more conservative approach to spending and borrowing on the part of consumers, the report said in its conclusions.<br /><br />According to Datamonitor&rsquo;s survey, more than 63 per cent of consumers said they intended to reduce their credit card spending as a result of the economic downturn, adding to the incentives for banks to adopt a more conservative model.<br /><br />&ldquo;The majority of consumer are looking to cut down on their use of credit products and take more control of their finances,&rdquo; he said.<br /><br />&ldquo;They are more suspicious of banks&rsquo; intentions as a result of the current csisis and it is likely to be a while before they consider returning to credit products,&rdquo; he added.<br /><br />UK banks&rsquo; appetite for risk has previously been identified as a key factor behind the damage caused to some City firms.<br /><br />Santander&rsquo;s UK chief executive Ant&oacute;nio Horta-Os&oacute;rio says that Spanish banks had weathered the credit crunch well because of their risk averse approach.