Commenting ahead of the publication of the final report by the Independent Commission on Banking, John Longworth, Director General of the British Chambers of Commerce (BCC), said“Any reforms to the UK banking system must be considered in the wider context of economic growth. The government must prioritise enterprise, wealth creation, growth and jobs, and a strong, well-capitalised banking sector prepared to lend is vital to achieving this. While there is clearly a need to ensure our banking system is robust, we must ensure that new regulations, however desirable in principle, do not inadvertently derail the fragile recovery."
On ring-fencing:
“The risks are particularly serious for small- and medium-sized businesses, which are vital to the economic recovery. There are real concerns that ring-fencing may limit banks’ ability to lend to small businesses. In addition, financial services is a sector in itself and one in which we have comparative advantage. While other parts of our economy need to be strengthened, this sector must also be given the opportunity to grow and continue to contribute to the economy.
“While we support the broad aims of ring-fencing, the implementation can only be considered over the longer-term, to avoid any unintended damage to the economy. The costs and effort involved in banks separating retail and investment banking operations could be enormous. We need more solid evidence that ring-fencing will avoid future crippling bailouts, and that the costs will not exceed the benefits. With the BCC’s recent economic forecast predicting weak growth until 2013, ring-fencing can only take place over an extended period to ensure that businesses are able to access the finance they need."
On lending to businesses:
“There is conflicting evidence on the supply-demand imbalance on bank lending to businesses. However, greater competition in the sector would mean better terms and conditions for business. While that doesn’t necessarily mean an immediate swarm of new entrants, it is important to give more active thought to the possibility of creating new regional banks with a strong SME focus. Improving SMEs’ access to the capital markets is also important. Meanwhile, we need greater transparency from banks, making it easier for businesses to compare products. If it is easier for businesses to switch between providers, poor service will be punished. Alongside greater transparency, this will drive down costs and improve terms and conditions for business customers.
“Establishing more effective relationships between banks and businesses is no easy task. However, ensuring we have a stable banking system will go some way to restoring confidence in the sector. Alongside this, banks must look more widely at how they communicate with business customers. Time and time again we hear from business owners who complain that banks are unable to make decisions at a local level about their financing needs. Greater transparency and local support from banks go hand in hand with improved amounts of financing available to businesses and a robust system that delivers for all.”