Sober model of banking to return to City
CHANGES to the regulatory regime will see the City return to the style of “boring” banking last seen before the period of market liberalisation of the 1980s, according to a report released yesterday.
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.
“Regulators are poised to impose some stringent rules on financial institutions, which are intended to prevent a repeat of the current banking crisis,” he said.
“The curbs on banking activity will reduce the level of lending, which will impede the ability of the economy to fully recover,” he added.
Banks’ 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.
According to Datamonitor’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.
“The majority of consumer are looking to cut down on their use of credit products and take more control of their finances,” he said.
“They are more suspicious of banks’ intentions as a result of the current csisis and it is likely to be a while before they consider returning to credit products,” he added.
UK banks’ appetite for risk has previously been identified as a key factor behind the damage caused to some City firms.
Santander’s UK chief executive António Horta-Osório says that Spanish banks had weathered the credit crunch well because of their risk averse approach.