Ringfencing may hurt business banking says CBI

Posted on 5 Jul 2011 by The Manufacturer

The CBI is calling on the Independent Commission on Banking to undertake a rigorous cost-benefit analysis of its proposals on ring-fencing bank retail operations.

The CBI is asking the ICB to look at the business and economic impact of the changes it is considering to ensure the policies will support the recovery.

John Cridland, CBI Director-General, said: “We do not believe the Commission has made a sufficiently strong case that the ring-fencing proposals will achieve their objectives. They should not proceed with the idea unless it stands up to a rigorous cost-benefit analysis.

“Businesses want greater stability in the financial system, but it’s not clear that the current ring-fencing proposals will deliver this, and could in fact lead to greater instability. These plans could result in riskier lending within the ring-fence, and cause significant disruption to banks and businesses outside the ring-fence in the event of a crisis.

“All banks have unique business and funding models. If the Commission does progress with ring-fencing, the scope must be sufficiently flexible to recognise this. A one-size-fits-all solution would force all banks to have the same business model, which would stifle innovation, reduce competition, increase costs and hamper growth.”

In its submission to the ICB, the CBI said more work is needed to show that current plans on ring-fencing and stability do not either lead to riskier lending within the ring-fence, increase leverage in the system, or become pro-cyclical making future crises worse.

The CBI submission also says that capital reforms must be agreed internationally, so as not to damage UK competitiveness, and it encourages the ICB to focus on competition in the business banking sector, not just retail consumers.

Ana Botín, chief executive of Santander UK, warned that more onerous capital requirements would make funding more expensive for small and medium-sized businesses.