CBI opposed to break up of banks

4th Feb 2011 00:04

The desire to break up UK banks considered "too big to fail" should be resisted, John Cridland, the new head of the pressure group the Confederation of British Industry (CBI), said on Friday.In a series of recommendations to the Independent Commission on Banking, Cridland said: "Businesses value integrated services provided by large universal banks, so breaking up existing banks is not the way forward."In the CBI's view the primary aim of any reform of the British banking system is to ensure that banks are in a fit state to finance a private sector recovery and support future growth.Cridland suggested the government should introduce structural reform to establish "the necessary capital buffers," with effective recovery and resolution arrangements, and appropriate supervision.The CBI gives the thumbs up to the concept of "living wills" aimed at ensuring that core banking services can continue in the event of a crisis. The CBI also came out in support of the following structural reforms:* Contingent capital which can help support banks' core services on a going concern basis* The introduction of the proposed Financial Policy Committee (FPC) to act as a highly-skilled supervisory body to spot emerging risks or bubbles* Mechanisms which promote separation between banks - further investigation of the merits of central counter-parties (CCPs) which could act as effective "circuit breakers" in reducing bilateral interbank exposures and contagion during a crisis.The lobbying group stressed that banking reforms should be globally co-ordinated so as not to endanger the UK's status as a leading international financial centre."Financial services in the UK is a world class sector, accounting for around 10% of total economic output, so we must not jeopardise this position by acting in isolation on reforms," Cridland said.While singing the praises of the UK financial services industry the CBI would still like to see a number of changes aimed at increasing competition, such as making it easier for companies to switch banks should they wish to. The CBI would also like to see greater transparency in the pricing of bank products and services, to make it easier for companies to make informed choices from a diverse range of suppliers. Greater sharing of infrastructure between the banks would also be a good idea, the CBI reckons, and suggests that the range of transactions that bank branches could carry out for customers of other banks should be widened, perhaps to include basic deposit taking facilities for cash and cheques. The CBI also called for the "time-consuming and opaque Financial Services Authority (FSA) authorisation process for new market entrants" to be improved to make it easier for new operators to enter the market, while it also suggested the Independent Commission on Banking should consider the role that non-banks and markets can play in providing financial services.