07 Sep, 2011

Independent Commission on Banking – PwC comments in advance of final report

The Independent Commission on Banking’s final report is due to be published on Monday 12 September. Ahead of the verdict, experts from PricewaterhouseCoopers (PwC) have commented on the potential implications for the UK banking industry, the wider economy and consumers.  

Andrew Gray (pictured), UK banking leader, PwC, said: “Once the proposed changes are published it will be up to the Government to decide on the changes it wishes to put into effect.  The proposals are aimed at improving stability and competition, the challenge will be to determine if the potential benefits outweigh the costs.

“Any changes the Government commits to should be legislated for and the timeline for implementation determined as soon as possible.   No one benefits from uncertainty and moving quickly will help mitigate impact on credit supply, recovery, UK competitiveness, bank staff morale and so on.  There will naturally be concern about how reforms could affect the UK banks’ ability to compete globally, particularly given their considerable contribution to the economy and employment.

“No country has made such ring-fencing changes before. Any changes will have both intended and unintended consequences.  Although there is increasing consensus that stronger ring-fencing would increase costs, impact bank lending and have a negative short-term impact on economic growth.  The international community will be watching the UK very closely to understand the changes being made and the impact.”  

Commenting on operational issues, Julian Wakeham, UK capital markets consulting leader, PwC, said: “The sooner the banks know what the end point looks like, the sooner they can make the necessary plumbing and governance changes.  Ring-fencing would require greater operational separation to ensure each entity could stand on its own in a crisis.  Dual treasury and payments infrastructure, new governance procedures and structural provisions for how financial instruments are managed may all be required.  

“We shouldn’t lose sight of the fact that, while ring-fencing could help to isolate and limit risks, retail banking carries its own significant inherent risks to the economy.”

Commenting on consumer and competition issues, Steve Davies, UK retail banking leader at PwC, said: “There was not a lot in the interim report of tangible benefit to customers, who continue to take a backseat to the ring-fencing debate.  In particular, measures to strengthen competition and encourage innovation in retail banking markets were overlooked.   Hopefully, the final report will contain more detail on plans to encourage new market entrants and increase choice for consumers.   Possible options include targeted support for start-ups and non-bank entrants, technology investment, temporary capital relief, access to distribution networks, simpler FSA authorisation, and payment infrastructure access or exception from the bank levy.”  

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