Chancellor’s plans for UK banking reform are “puzzling”, say experts
The Chancellor of the Exchequer is set to announce plans with up to 30 reforms in a major shake-up of the UK’s post-Brexit banking regulations.
Among the so-called ‘Edinburgh Reforms’ is a review on rules that forced banks to legally separate – or ‘ring-fence’ – their retail banking and investment operations, which were brought in during the Global Financial Crisis in 2008 to ease pressures on the struggling sector.
Dr Angela Gallo, Senior Lecturer in Finance and Dr Francesc Rodriguez Tous, Lecturer in Banking from the Centre for Banking Research at Bayes Business School have both urged caution around any plans to de-regulate at this stage.
“Together with the removal of the bank bonuses and the discussion on call-in power, this political decision seems to have little to do with fixing the financial system or ensuring financial stability,” Dr Gallo said.
“These were the main arguments behind many of these reforms in the aftermath of the financial crisis, but this seems to have more to do with a wish to deregulate.
“Increasingly, the initiatives of the government seem to ultimately target the role of central banks and regulators. While ring-fencing was a costly measure, the system has already adapted to it.
“De-regulation, unless carried out with a clear objective, can be dangerous.”
Dr Rodriguez Tous was equally sceptical of planned reforms.
“Part of the importance of banks in the economy is the provision of basic banking services, mostly current accounts but also lending,” he said.
“A key reason why governments around the world spent billions rescuing banks amid the 2008 Global Financial Crisis was to avoid the disruption of these services.
“Ring-fencing attempts to partially isolate the basic banking services from turbulent global financial markets. It means banks can still engage in investment banking as long as their retail banking operations are ring-fenced.
“It is therefore puzzling that this is one of the reforms targeted by the government, given that its repeal will most likely lead to less money flowing into the UK economy in the short term.
“Moreover, there is no widespread clamour for its repeal from the banking industry itself. We don't know what will happen when repealed, but what we do know is that its introduction has led to more investment in mortgages as well as lower rates in the UK.”
All quotes can be attributed to Dr Angela Gallo, Senior Lecturer in Finance and Dr Francesc Rodriguez Tous, Lecturer in Banking from the Centre for Banking Research at Bayes Business School.