WIREDGOV

Commenting on yesterday’s interim report from the Independent Commission on Banking, David Sayer, global head of retail banking at KPMG, said:  “We can view today’s interim report as a ‘menu of choices’ that the Chancellor must now consider as the debate continues through to September. While the report highlights its commitment to ensuring the UK’s competitiveness as a financial centre, everything on this menu comes at a price and the correct balance must be struck to ensure both financial stability and economic growth in the UK.

 

“One of the most striking things in the report is that the implicit tax payer guarantee of banks has become far more explicit with the report making clear that retail banking businesses will be protected while investment banks will be allowed to fail, with the burden falling on shareholders and bondholders first. These recommendations are aligned with the FSA’s evolving initiatives around recovery and resolution planning.

 

“A lot more detail needs to be worked through over the next five months, including the definition of retail banking and the mechanics around ring-fencing. Specific definitions within retail banking must be clarified and clear boundaries established.  It is important to note that there are significant implementation challenges for banks around ring-fencing, for example the systems required to support this could take years to develop depending on the final outcome.

 

“The recommendations on capital requirements are not surprising given they’re broadly in line with Basel rules plus the expected add-on for SIFIs. However, while there is a lot of talk in the report on capital, the question that remains is how funding is going to flow between retail and investment banking areas – if at all.

 

“With regard to the competitiveness of the UK, this report sends a signal to international banks that the UK is still open for business but in the next downturn much more of the burden of failing banks will fall upon bondholders.

 

“On a global level, it will be interesting to see how these recommendations fit in with upcoming G20 discussions on G-SIFIs, the ongoing Dodd Frank rulemaking in the US and developments in the EU. This report creates a challenge for the EU; there are precedents of the EU following the UK’s direction on living wills and liquidity. With the multiple global initiatives, and the emergence of macro prudential supervision, it will be interesting to see how the report’s observations either challenge or influence international thinking over the next six months.”

 

Notes to editor



For further information please contact

Monica Fiumara, Senior PR Manager, KPMG

Tel: +44 (0)20 7694 5674

Mobile: +44 (0)7901 105180

Email: monica.fiumara@kpmg.co.uk