Breaking up Britain’s biggest banks would be a mistake and could hold the sector back from supporting economic growth, the CBI business group said today.
In a stark warning to the UK's Independent Commission on Banking (ICB), which is considering a major overhaul of UK banks, new CBI boss John Cridland said rather than breaking up the big players, banks must be strengthened to play a part in financing a private sector-led recovery.
Mr Cridland, who took over as director general of the CBI last week, stressed the UK risked damaging its position as a global financial centre by acting unilaterally.
He said in the CBI’s submission to the ICB: “Breaking up banks would be a mistake; we need a strong banking system to help support the economy and growth.”
He added: “Improving credit flows and providing relevant financial products to businesses will be critical to drive growth and recovery.
“Financial services in the UK is a world-class sector, accounting for around 10% of total economic output, so we must not jeopardise this position by acting in isolation on reforms.”
The government-commissioned review by the ICB is looking at whether to break up banks in the wake of the financial crisis and to support competition.
ICB chairman John Vickers said in a speech last month the commission was considering splitting retail and investment banking operations to make banks safer and less at risk of taxpayer bail-outs.
But the CBI said reforms should focus on tightening capital buffer requirements and regulatory supervision rather than a full-scale restructure.
“Businesses value integrated services provided by large universal banks, so breaking up existing banks is not the way forward,” said Mr Cridland.
Its submission argues that large businesses need large, universal banks to support them and provide one-stop shop access to business banking, funding markets and services to reduce foreign exchange and commodity risks.
Large banks can also offer cost advantages through economies of scale that can be passed on to businesses, according to the CBI.
But the business group supported the need for greater competition in the banking sector.
It urged the ICB to look at ways to improve barriers to entry for new players while also promoting greater transparency and making it easier for businesses to switch banks.
While it agreed that lending to businesses needed to improve, the CBI said more diverse forms of non-bank funding should be encouraged, such as through insurance firms and private equity.
On the issue of bonuses, the CBI said the culture within banks needed to be addressed to win back trust.
“Boards need to be sensitive to public concern over the quantum of pay, a task they must juggle with the need to be able to compete for the world’s best talent,” said Mr Cridland.