British Bankers’ Association Chief Executive Officer Angela Knight said plans to force lenders to build firebreaks around their consumer units risk hurting growth as the government prepares to publish draft legislation.
Chancellor of the Exchequer George Osborne will publish his plans tomorrow to implement the proposals set out by the government-appointed Independent Commission on Banking. The proposals will take seven years to implement and may cost the industry as much 7 billion pounds ($11 billion), the ICB said.
“If a bank has got to hold more cash and more capital, that is money it cannot also lend,” Knight, the U.K. industry’s top lobbyist, told a conference in London today, according to a transcript provided by the BBA. “A growing economy requires a vibrant banking sector to finance it.”
John Vickers, chairman of the ICB, recommended in September that banks insulate consumer units from investment banking to increase stability in the financial system. Bank lobbyists are pushing the government to dilute the proposals as they move toward being put into law. Raising capital requirements for lenders risks reducing their profitability.
Knight said the proposed firebreaks will make it harder for banks to offer accountholders fixed-rate mortgages and to provide foreign-exchange hedging. The plans also risk damaging London’s international wealth-management businesses, she said.
While domestic clients would be protected by the firewall “international personal wealth-management would have to be located entirely outside the ring-fence,” Knight said. “This is nonsense. The U.K. is shooting itself in the foot and there needs to some better thinking in that area.”
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