Newspaper article The Journal (Newcastle, England)

Radical Plans for Banks Raise Concern; Aim to Prevent Another Run on UK Banks

Newspaper article The Journal (Newcastle, England)

Radical Plans for Banks Raise Concern; Aim to Prevent Another Run on UK Banks

Article excerpt

Byline: Iain Laing

RADICAL plans to ensure taxpayers are protected from future banking failures have been welcomed by the Government but raised concerns among businesses and bank staff.

The Independent Commission on Banking unveiled the biggest overhaul of UK banking for a generation four years to the week after the run on Northern Rock heralded a series of collapses which left the industry in crisis.

Its far-reaching shake-up of the sector includes ring-fencing banks' high street divi1sions to protect them from riskier investment arms and setting aside more cash to cushion the blow of potential losses or future financial crises.

Chancellor George Osborne said the report was "impressive" and "incisive" as he pledged to pass legislation required to implement the reforms before the 2015 general election.

But the report from the ICB, chaired by former Office of Fair Trading head Sir John Vickers, could take eight years to implement and fuelled fears the estimated pounds 4bn to pounds 7bn cost of implementing the changes would be passed on to banking customers, although it would make the industry more transparent.

Business broadly backed the plan's attempt to stabilise the economy, but there were concerns about the increase in the cost of lending which may put British firms at a disadvantage to foreign rivals.

CBI deputy director-general Neil Bentley said: "The UK is going it alone on ring-fencing, so the Government must rigorously examine how and when to implement these proposals, otherwise it risks damaging businesses and threatening growth."

Ross Smith, policy director of the North East Chamber of Commerce, said: "For the majority of businesses, it is hard to see what the benefit will be.

"Of course, creating stability is essential.

And some of the concerns about the potential problems, such as larger businesses being locked out of retail banks, have been avoided with a fairly flexible approach.

"An increase in the cost of borrowing might arise as a result of tougher regulation on capital, but how significant this will be depends on underlying credit conditions in 2019 when this is implemented, which are obviously impossible to predict. …

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