Vickers says Bank reforms were too tough

Tim Wallace
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SIR JOHN Vickers yesterday acknowledged his widely welcomed banking reforms were too heavy handed, hurting banks unnecessarily in some areas, including on capital levels.

And he praised the government’s tweaks to his proposals, despite initial fears from the Labour opposition that the coalition has watered down the reforms excessively.

Sir John led the Independent Commission on Banking (ICB) which last year proposed a shake up of banking regulation, including the requirement for large banks to be partially split, with a ring-fence drawn around retail banking arms to separate them from investment activities.

“We concluded on balance that we were not persuaded of the need for a [minimum size] threshold,” he told the Parliamentary Commission on Banking Stan-dards yesterday.

“In consultation a cost benefit analysis was done and found good reasons for a minimum level, with the government thinking of exempting firms with up to £25bn of mandated deposits. I suspect the government position is right, though my instinct says the limit is on the high side.”

The ICB had also initially proposed that banks must hold extra capital in case they collapse, to reduce the burden on the taxpayer.

But following lobbying from banks including HSBC, the government removed this requirement for banks which have strong resolution processes in place – another step Sir John agreed with.

But he did object to his planned leverage cap being weakened from 25 times to 33 times, as he fears that could leave banks overstretched in future.