Guest post: Banking reform: Ringfencing can wait, consumer choice cannot.
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Guest post: Banking reform: Ringfencing can wait, consumer choice cannot.
The banking reforms outlined this week by the Independent Commission on Banking appear prudent and sensible. Let us not forget that these findings have come about as a result of a widespread investigation into the banking collapse of 2008-9 that has already caused one recession and the ripple effects of which threaten to cause another. Quite simply, something had to be done.
Not only did something have to be done, the individuals assigned the task of making recommendations are more than appropriately qualified to do so. Their knowledge and experience of financial markets is vast and they understand better than most the importance of the financial sector to this country’s economy.
It is therefore pleasing to see such widespread political support for the Commission’s findings. With press speculation before the announcement as to whether he would, the Chancellor took the wise step of not only trusting in the work of these independent experts, but also following the mood of the public. Commendably, the other parties did the same.
However, although the Chancellor made the right decision to back the reforms, he does find himself in a difficult position. On the one hand, the fact that he’s peering over the edge of a recession makes it very difficult to heap extra regulatory burden on a fragile banking sector. On the other, he must be seen to be doing something by a public that wants a change in the way banks operate.
His get-out clause seems to be allowing the changes to occur over time. Sensible enough. However there are certain reforms which would help garner more public support with which he could force through more tricky reforms. The introduction of a switching system for personal and small business accounts could be completed as soon as possible. A crucial part of the government’s battle to raise economic growth must be ensuring that small business lending increases; the improved choice that could come from easier switching could help.
Banking reform won’t be easy. It will require significant changes, some of which will be bitter pills to swallow for many large financial institutions. But by fast-tracking popular changes that will benefit individuals and small businesses, he will build the public support he needs to help force the banks to swallow the other medicine they so desperately want to avoid.
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This is a guest post by Joe Carstairs (@JWCWords), who provides his own commentary on accounting and finance industry issues; Joe was formerly a market reporter for EuroWeek, and currently blogs for a number of leading finance and small business publications.
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