The 2013/02/12 at 08:06
Stéphanie Salti, in London
The light-handed regulations from which British financial establishments benefited during the 1990s are now a thing of the past. The British Chancellor of the Exchequer, George Osborne, has now opted for a more heavy-handed approach. During a speech presented at the office of the American bank JP Morgan in Bournemouth, in the south of England, on 4 February, the Minister threatened to dismantle any British banks that might follow the unwise idea of refusing to conform with new financial regulations. “We’re not going to repeat the mistakes of the past,” he stated. “So we are going to arm ourselves in advance.”
While the bill on banking reform was examined by the House of Commons on the same day, George Osborne decided to go much further than the initial recommendations published by the Independent Commission on Banking (ICB): rather than pairing together retail and investment banking activities, the Chancellor of the Exchequer supported the idea of “electrifying the ring fence” between retail and investment banking, defended by a parliamentary commission at the end of December 2012. In other words, this means introducing a law to clearly separate these activities if confinement proves ineffective. This is a familiar alley wandered down by many a British banking scandal: scandals surrounding payment-protection insurance or problems relating to product sales and fixed Libor (London Interbank Offered Rate) quotes have forced the four biggest banking establishments (HSBC, Lloyds Banking Group, RBS and Barclays) to seek colossal provisions from their accounts.
These scandals, compounded by criticisms on the sum of bonuses and the billions invested in British banks at the height of the crisis, have only aggravated the worsening public opinion of the banking sector. This state of crisis was largely echoed by George Osborne during his speech at Bournemouth: “Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system,” he insisted. “The anger people feel is very real.” The British Chambers of Commerce (BCC) is supportive of the banking reform, but nevertheless warns against the risk of collateral damage that this harder tone may have on British businesses. Dr Adam Marshall, Director of Policy at the BCC declares that “banking reform must be considered in the context of the economy as a whole. It is vital to businesses that the UK banking system is safe, but the litmus test for any banking reform is whether it unwittingly creates extra barriers for firms seeking finance. The new regulations proposed in the Banking Reform Bill must be carefully designed and implemented to avoid perverse consequences.”
The London marketplace has also expressed its scepticism regarding the Chancellor’s change in tone. The association in charge of British banks, the BBA, has highlighted the accentuated difficulty for banks to raise capital, and as a result, to lend to businesses. “Ministers must move forward with urgency and scale to create a British Business Bank that really addresses this gap, and ensure that viable and dynamic companies are able to access capital and fulfil their potential,” continues Dr Adam Marshall from the BCC.
The new banking rules crop up at a time when the United Kingdom is preparing to give birth to two new supervisory authorities to replace the Financial Services Authority (FSA), the current regulator of financial service providers: a prudential authority reporting to the Bank of England, and a financial conduct authority in charge of protecting consumers. In this way, 2013 bodes for deep-running transformations in the British financial sector.