Silent Knight?

After a year long build up the Independent Banking Commission has finally published its interim report.  The headline recommendation was that UK banks' retail operations should be ring-fenced from their investment banking arms, although it did not go as far as some expected and suggest the two should operate as separate entities.

But what will be the real impact of the reforms? Opinion is widespread although the general consensus, and the reaction of the markets, is that the Banks are breathing a sigh of relief . And that the reforms will be broadly welcomed across the political spectrum, which is key if the proposals are to be implemented quickly by the Chancellor once the final report is delivered to him in September.  

There was an unusually timid response from the British Bankers' Association that said it would "take time to carefully consider the costs involved and the economic impact on the wider economy" of the report. The quote was not even issued in the name of the outspoken Chief Executive Angela Knight.  Ms Knight is rarely one to hold back in defending the banking industry. The BBA may well be holding their fire and reserving their arguments for behind closed doors. Or it could be that they are extremely pleased the Commission has not gone further in calling for the break up of the sector.  

The loudest cries of foul came from Lloyds Banking Group who seemed to have been singled out in the report for the biggest criticisms.  The Chairman and new Chief Executive both expressed their ‘surprise’ at some of the recommendations aimed at the Group. No doubt stronger words were used in the Boardroom as the report was digested!

It is always better to influence policy at an early stage of development. So Lloyds might well be questioning if they built a strong enough case in their favour and did they present this evidence to the Commission (and outside it) in the best way. Perhaps, alternatively, the Commission simply needed to provide some meat for their political masters to feast upon. The Group will no doubt be considering these issues ahead of the Commission’s final report in September.

Tony Cox, Linstock Consultant