Barclays chief executive Bob Diamond believes banking reform could halt economic recovery

Bankers attempt last-gasp Osborne lobby over reform

Bankers attempt last-gasp Osborne lobby over reform

By Phil Scullion

George Osborne is meeting with Barclays chief executive Bob Diamond today as bankers launch a last gasp bid to delay banking reforms.

It is expected that the independent banking commission chaired by Sir John Vickers, which is due to report within two weeks, will recommend that banks split their retail and investment arms to protect the public.

However Mr Diamond is arguing this will prevent banks from lending to small businesses and personal customers as they will have to hold more capital.

There is speculation that if the Vickers report is too strict then Barclays could respond by moving its investment banking arm, Barclays Capital, overseas.

Mr Diamond's attempts to dissuade Mr Osborne from implementing the rules in the short term follow warnings from several pro-business campaigners that major banking changes could throw the economic recovery off course.

Angela Knight, chief executive of the British Banking Association, said earlier this week that "now is not the time" for reforms.

Other heads of British banks are expected to meet with Mr Osborne over the coming days prior to the publication of the Vickers report on September 12th.

Banking reform could yet prove a contentious issue for the coalition, with business secretary Vince Cable accusing bankers of being "disingenuous in the extreme" earlier in the week.

He added: "The uncertainty and instability in the markets makes it all the more necessary that we press ahead and make our banks safe and reform them."

However Mr Osborne is thought to be more sympathetic to the banks position and appears to have an ally in the prime minister, David Cameron, who warned against reforms which put the economy at risk.

Ms Knight said Britain faced a "very difficult autumn" which would only be made worse by news of long-term reform of the banking sector.

"We have a high degree of uncertainty, market turbulence and lack of confidence that governments in other countries have got a sufficient grip on their economies," she commented.

"This is therefore the time to concentrate on economic recovery and paying back… the government and taxpayers.

"By all means think about new regulation but now is not the time to add that as an overlay with respect to costs, uncertainty or whether it is going to do anything beneficial anyway."

John Cridland, head of the Confederation of British Industry, cautioned that any major shake-up of banks at a time of economic uncertainty was "barking mad".

He told the Financial Times newspaper: "Taking action at this moment – this moment of growth peril, which weakens the ability of banks in Britain to provide the finance that businesses need to grow – is just to me barking mad.

"We don't want to force some of our remaining world class British companies to shift away from a focus on the UK because the rules have been set unilaterally in the UK.

"There's an own goal here about to be scored if we get this wrong."