IoD response to Banking Reform proposals
In their initial response to proposed banking reforms, the Institute of Directors has welcomed ICB attempts to improve the state of the British banking industry, but believes the changes will only “slightly reduce the risk” of a future financial crisis.
In the report, the commission proposes to ring fence retail operations and increase capital requirements on banks. However, Miles Templeman, Director-General of the Institute of Directors still has some doubts over whether these reforms will insulate the UK from major bank failure abroad.
Commenting on the report, Mr Templeman said: “Many of our members will welcome the most radical reform of the banking system in a generation.
“However, the proposals only slightly reduce the risk of a future financial crisis. The problem of ‘too big to fail’ investment banks remains the elephant in the room.”
Mr Templeman also expressed concerns that higher capital requirements of the proposals would push up the cost of borrowing for consumers and businesses. While the report does provide some reassurance here, it remains unclear how much the changes are set to cost the taxpayer.
The timing of the implementation also came under scrutiny by the IoD, who believed that the eight-year timescale was a sensible proposal.
Mr Templeman continued: “ Monetary growth over the coming years is likely to be very weak and so early implementation of tighter rules on capital would not be helpful.
“Money supply growth needs to be much stronger than at present before full implementation can be safely carried out.”
The proposals could also have an impact on the competitiveness of the City and the future of London as the world’s leading financial centre.
“We need to have much greater clarity on this issue before any legislation hits the statute book,” he added.