The ring-fencing proposal was put forward by the Independent Commission on Banking (ICB) and its Chairman, Sir John Vickers, argued the downgrade of British banks on the back of the Commission's final report was an "entirely benign development" for the economy.
The banking heads were not fully in agreement with the proposal however; Stephen Hester, Chief Executive of Royal Bank of Scotland said that there was a significant risk that the costs of the proposal “will not be balanced by their benefits”.
And Sir Win Bischoff, chairman of Lloyds Banking Group, argued that the cost estimate given by the Commission of £4bn to £7bn could be far higher and that the report had not provided a definitive analysis of these costs.
Other heads echoed the caveats; HSBC Chairman Douglas Flint said: "Ring-fencing won't impact the availability of funds (to lend to businesses), but it will impact the cost.”
Ana Botín, Chief Executive of Santander UK, warned the Committee that the bank might have to cut back on "certain services" it provides to small and medium-sized companies as a result of the regulatory changes.
Bob Diamond, Chief Executive of Barclays, also questioned the value of ring-fencing, arguing that investment banking was not inherently more risky than retail banking. And Mr Hester agreed that since the crisis, RBS had lost more money on "regular lending" than on its investments.
However, despite the hints of deleterious knock-on effects to business and investors, the conclusion was that the banking industry as a whole accepted the need for banks to be reformed "to the point where taxpayers don't have to put up (any more money)".
For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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