05 Sep, 2011

Ernst & Young Item Club warns that banking reform would cut growth

The week before the Independent Commission on Banking’s final recommendations on the UK banking reforms, the Ernst & Young Item Club has warned that the proposed ring fencing plans could damage economic growth, reducing it by 0.3 per cent, undermining the country’s recovery.

The report warned that the commission’s recommendations for ring-fencing banks’ High Street operations from their investment banking divisions would end the government guarantee of UK banks, reported the BBC.

This would lead to an increase in borrowing costs for banks, raising the costs of lending to businesses by around 1.5 per cent.

According to the club, the result of this would likely be ‘a loss of up to 0.3 per cent of GDP’.

According to the BBC, Neil Blake, economic advisor to the Item Club, said: “These predictions are not based on a worst-case scenario; they’re based on moderate assumptions about the extent of ring-fencing.”

The Commission’s final recommendation is due around the week commencing 12th September. However, last week, the government said that any changes in banking regulation were unlikely to be implemented until after 2015.


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