Comment: Clear heads needed for banking reform debate
It is only by focusing on the bigger picture that we will ensure a sustainable future for this crucial UK economic sector.
By Alan Leaman
Just a fortnight ahead of the publication of the Independent Banking Commission's (IBC) final recommendations, a heated debate has started within the coalition and, more importantly, between the government, representatives of the city and lobbyists such as the CBI. The main focus has been one of the recommendations the IBC made in its interim report published in April: that banks' retail operations should be 'ringfenced' from their investment banking arms.
The insults and arguments are being traded as I write. Each side misrepresents the other: reforms are said to be 'barking mad' and arguments to be 'disingenuous in the extreme'. One side pretends that there haven't been any changes to banking regulation since the crash; the other argues that the ring-fence proposal would have an impact way beyond its significance. None of this will increase public confidence in the regulation of our banking system, nor does it cast much light on how policy-makers should now proceed.
Following publication of the IBC's recommendations, the government will need to provide a clear and decisive response. There has been too much confusion and far too much politics. The country now needs clarity and strong collective leadership.
Although ministers talk about re-balancing the economy away from financial services, they also know that a strong banking sector is vital for future growth, both in its own right (banks remain and should be prized as a great UK competitive asset) and as a supporter of other businesses. The ONS has recently confirmed that what growth we have achieved in recent months depends heavily on business and financial services.
So, while further regulatory reforms should be well-paced and properly thought through, opponents of change should be careful. There is a mutual interest in securing a long-term and sustainable new regulatory settlement.
When we asked a panel of 100 senior management consultants within our membership about this, an overwhelming majority (79%) said that they supported the ring-fencing idea. Management consultants have been heavily engaged with the financial services industry since the credit crunch in 2008 and are close to the organizational and regulatory challenges that they face. Their experience leads them to believe that moving ahead with this particular change could be a considerable advantage for UK banks.
But all our members would admit that this is only one of a large number of issues on the table. It is probably not even the most important, though it must be done in a way that doesn't impose large amounts of new costs on banks. This is part of a package. This isn't a time for vengeance on the banks, or for bankers to forget their wider obligations to society, the economy and taxpayers.
Let's have some calm heads and clear thinking, please.
Alan Leaman OBE is chief executive of the Management Consultancies Association and was Paddy Ashdown's chief speech writer from 1988 to 1993.
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