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Retail banking plan may depress lending

An announcement that was forgotten in the excitement of the Mortgage Market Review was the chancellor’s commitment to ring-fence retail banking operations from investment banking assets.

Gemma Harle, Managing director Tenetlime

There are many thoughts on how wide and how high this ring-fence will be in reality. All the major banks have called the plan unnecessary, given that international regulations on resolution regimes and new capital requirements mean taxpayers will be protected in the future.

This stance is understandable as banks are feeling under siege and more regulation is unlikely to help.

Ironically, we need banks lending more than ever. While the start date might be far in the future, the impact of important regulatory changes in the near term is likely to see them withdraw further and not take risks while they try to understand the ramifications and lobby against the change.

So there is a risk that growth and the housing market will struggle with this diversion.

This is about making banks smaller, yet we can manage big banks using measures such as capital requirements that give flexibility and targeted options to achieve the desired effects.

Indeed, the propensity of smaller companies to fail in a global market is surely greater.

The issue is far from being settled but I hope the collateral damage done to lending is not as large as it may appear to be. The idea behind this move might not be wrong in principle but its execution and timing may never be right.



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After much anticipation, a couple of years of consultation and some stand-offs, the Financial Services Authority’s final Mortgage Market Review proposals were published a few days before Christmas.


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