Don’t ‘water down’ banking reforms, Cameron told

The Federation of Small Businesses has called on Prime Minister David Cameron to avoid ‘watering down' radical proposals on banking reform, despite financial industry pressure.


The Federation of Small Businesses has called on Prime Minister David Cameron to avoid ‘watering down’ radical proposals on banking reform, despite financial industry pressure.

The Federation of Small Businesses has called on Prime Minister David Cameron to avoid ‘watering down’ radical proposals on banking reform, despite financial industry pressure.

FSB national chairman John Walker has written an open letter to Cameron urging him not to make decisions based solely on the views of a ‘small, albeit highly influential group’ ahead of the publication of the Independent Commission on Banking report. The report is due to be released next week.

The government, which commissioned the ICB report, has pledged to ‘reform the regulation and structure of the banking system’ in light of the effects the credit crunch has had on the economy and access to finance for small and medium-sized enterprises (SMEs).

Walker points to a recent federation-commissioned survey that finds 71 per cent of influential City figures say that it would be a bad idea if the government took no action on banking reform.

Walker says, ‘Having commissioned a report into the banking sector, it is very disappointing that the government is now looking to water down the findings before the ICB has even reported. We were promised radical reform, but it now appears that this has been downgraded to ‘light touch’ regulation after 2015, if we are lucky. This is simply not good enough.

‘Small businesses have had a tough time at the hands of the banking sector – with more than a third of businesses missing their growth opportunity as a result of being refused credit.

‘The government courted businesses with promises of reform and it is time that they stood by those promises. Without urgent and radical reform the banking system will never change and those businesses needed to help pull the recovery onto firmer ground will be left to struggle.’

The letter comes as Donald Kohn, an external member of the Bank of England’s interim Financial Policy Committee (FPC), urged more transparency in the financial services sector, particularly in the transaction of financial products and instruments.

In a speech delivered at the London School of Economics this week, Kohn says greater transparency of both the financial system and policy makers can enhance financial stability.

He continues that the establishment of the FPC this year brings an important macro-overview to the job of regulating the financial system. But he argues it is ‘private decisions’ that will ultimately determine financial stability, despite the ‘best efforts of regulators’.

Kohn contends that in the build up to the crisis, badly informed private sector decisions resulted in financial instability. There is a need for greater transparency among financial institutions, instruments, and markets, he adds.

‘A variety of risks were poorly understood, poorly managed, and badly priced,’ he says. ‘Institutions, markets, instruments, and the interactions in the financial system became more opaque in the years leading up to the crisis.’

Todd Cardy

Todd Cardy

Todd was Editor of GrowthBusiness.co.uk between 2010 and 2011 as well as being responsible for publishing our digital and printed magazines focusing on private equity and venture capital.

Related Topics