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IoD cautious on banking proposals

Tuesday September 13th, 2011

The Institute of Directors (IoD) has released its ‘initial’ response to the Independent Commission on Banking (ICB) report.

IoD Director-General Miles Templeman said that many IoD members will welcome the most radical reform of the banking system in a generation.

He said: “The proposals to ring-fence retail operations and increase capital requirements are clearly intended to reduce the fiscal risk from a future financial crisis. However, the proposals only slightly reduce the risk of a future financial crisis. The problem of ‘too big to fail’ investment banks remains the elephant in the room. There are also doubts about whether these reforms would insulate the UK’s banking system from harm if a major bank failure occurred outside the UK.

“There is also considerable uncertainty as to what the impact of the proposals will be on the cost of borrowing for consumers and business. The final report provides some reassurance here, but there can be no doubt that higher capital requirements will push up the cost. The issue is how much. Other concerns relate to the timing of the implementation. The Commission recommends the changes should be implemented by 2019. We think this is sensible. Monetary growth over the coming years is likely to be very weak and so early implementation of tighter rules on capital would not be helpful. Money supply growth needs to be much stronger than at present before full implementation can be safely carried out.”

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