Bloomberg News

Financial Crisis Won’t Derail U.K. Bank Overhaul, Cable Says

September 01, 2011

(Updates with newspaper story in seventh paragraph.)

Sept. 1 (Bloomberg) -- Business Secretary Vince Cable said global financial instability underscored the need to “press ahead” rather than delay a regulatory overhaul of Britain’s banking industry.

With the government-appointed Independent Commission on Banking due to report on Sept. 12, Cable questioned suggestions from banks and industry lobbyists that new rules be postponed given the U.K.’s faltering economic recovery.

“At times of financial instability, it’s all the more important that we press ahead with reforms,” Cable said in a telephone interview. “I’m confident that when the banking commission reports in two weeks’ time, we will do exactly that.”

The ICB recommended in April that the U.K.’s biggest banks should boost capital, introduce plans for an orderly bankruptcy and erect firebreaks around consumer units to boost financial stability. If accepted, the plans should be implemented over a lengthy period, banks including Lloyds Banking Group Plc, Barclays Plc and Royal Bank of Scotland Group Plc said in July.

“The business community in the U.K. expects that government will indeed reform banking and make it better able to serve the real economy,” Cable said yesterday.

Cable, a Liberal Democrat, is at odds with his Conservative coalition partners, Prime Minister David Cameron and Chancellor of the Exchequer George Osborne, who are said to favor implementation of the proposals over several years, the Independent newspaper reported yesterday.

Much of the overhaul will probably be delayed until after the general election scheduled for 2015, the Financial Times reported today, citing unidentified government officials.

‘Barking Mad’

John Cridland, director general of the Confederation of British Industry, said in a BBC interview yesterday that it would be “barking mad” to implement such plans at the moment given the U.K.’s fragile economy.

“The big banks are important, influential members of the CBI, so I would expect him to speak up for them,” Cable said.

Barclays Finance Director Chris Lucas said at a conference yesterday that the “period over which implementation is required will be just as important” as the scope of the proposals.

RBS called for a “lengthy implementation timeline” if firebreaks are adopted, the lender said in a submission to the ICB released on July 13. In their responses, Lloyds said it wanted a “long” transition period, Barclays said the commission’s plan should be implemented over an “extended period” to minimize unintended consequences and HSBC Holdings Plc said it wanted “a lengthy observation period.”

Barclays, RBS and Lloyds may need to reduce assets by 658 billion pounds ($1.07 trillion) to maintain profitability if the ICB insists on consumer-unit firebreaks, JPMorgan Cazenove analysts said.

The U.K. lenders could be forced to shed lower-yielding assets to improve returns. So-called ring-fencing will also caused a jump in bank funding costs, the analysts wrote.

--With assistance from Howard Mustoe in London. Editors: Francis Harris, Eddie Buckle

To contact the reporters responsible for this story: Gavin Finch in London at gfinch@bloomberg.net; Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus