Banking reforms fail to consider role of banks in society

Government plans to reform banking in the UK still fall short of what’s needed, the CEO of Charity Bank said this week.

Malcolm Hayday has highlighted three areas where the government’s plans announced this week need further work:

• It does not require banks to become fully transparent. Information about where and how money is invested is still not available to customers; as a result they are unable to hold their bankers to account. The Vickers report contains no recommendations for tackling this issue.
• The wider role of banks in society is not included in the report. The sector holds enormous potential to bring about positive societal and environmental change but it is apparently unwilling to do so without the application of government pressure.
• Finally, although we believe that the ring fencing of retail deposits is a positive step, a complete separation of the different functions of banking is required if depositors are to be protected from the different risks contained in investment banking.

Hayday said “a disconnect between banks and the needs of the real economy ended in tears for many in society”.

He added: “We therefore welcome the government’s overall acceptance of a report designed to prevent a repetition of such actions. It would appear from initial announcements that the Vickers recommendations have not been diluted significantly, but we believe that the report itself still falls short.”

 The government set out its plans for banking reform earlier this week, in response to the Independent Commission on Banking report led by Sir John Vickers, and will publish its proposals for legislation in Spring 2012.

The Secretary of State for Business, Innovation and Skills, Vince Cable, said: "Sir John Vickers has produced a comprehensive plan to give the UK a more stable banking system that removes the implicit taxpayer subsidy.

"The potential costs of an unsafe banking system are clear to everyone. Our reforms will protect taxpayers from the riskier aspects of banking and boost competition without harming the ability of UK banks to lend, to invest and to compete."

Further details are available from the Treasury website.