BSA: ICB reforms should be proportionate to the risk posed by financial service providers

BSA: ICB reforms should be proportionate to the risk posed by financial service providers

BSA: ICB reforms should be proportionate to the risk posed by financial service providers

In its response to the Independent Commission on Banking (ICB), the Building Societies Association says it supports the ICB’s aim to make the banking system more stable and competitive, but any proposed reforms should be proportionate to the risk posed by different financial service providers. The BSA also believes that any retail ring-fence should incorporate mutuals’ entire business model.

Commenting on the BSA’s submission to the ICB, Adrian Coles, BSA Director-General, said:

“Proportionality of all reforms is key: large complex systemic banks cause most risk to the system, and their failure has the biggest impact. These institutions should face the bulk of the costs of reforms to internalise the costs of failures. If the reforms proposed affect smaller or simpler banks and building societies in a disproportionate way, then they are not the right prescription.

“The retail ring-fence proposal is a sensible one. However, we urge the Commission to ensure that mutuals’ entire business model is within the retail ring-fence to avoid unnecessary cost and complexity.”

Key points from the BSA submission include calls for:


· Mutuals’ current business to be entirely within the retail ring-fence, otherwise their provision of essential retail banking services would be burdened by unnecessary complexity and cost. The retail ring-fence, in combination with other proposed reforms, should help to resolve large banking groups in the future, and in doing so cause creditors to appreciate that the whole bank will not be supported.

· Large, complex systemic banks to be required to hold more capital which is better at absorbing losses. BSA members’ businesses are generally well capitalised, and there is likely to be little benefit in terms of stability by increasing further the capital they must hold. However, to enable mutuals to raise capital rapidly in the future, a capital instrument that is consistent with mutual ownership is necessary.
· The Commission to support diversity in the system, and it should call on the Government to make good on its commitment in the Coalition Partnership Agreement to “bring forward detailed proposals to foster diversity in financial services, promote mutuals and create a more competitive banking industry”.
· Lloyds Banking Group to increase its divestment, as this institution’s market share grants it a powerful position that it could use to its advantage in more normal market conditions.

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Note to editors

A full copy of the BSA’s final ICB submission can be viewed here http://www.bsa.org.uk/docs/policy/ICBinterim_BSA.pdf
The Building Societies Association (BSA) represents mutual lenders and deposit takers in the UK including all 48 UK building societies. Mutual lenders and deposit takers have total assets of over £365 billion and, together with their subsidiaries, hold residential mortgages of almost £235 billion, 19% of the total outstanding in the UK. They hold more than £245 billion of retail deposits, accounting for 22% of all such deposits in the UK. Mutual deposit takers account for about 35% of cash ISA balances. They employ approximately 50,000 full and part-time staff and operate through approximately 2,000 branches.
Photographs of Adrian Coles are available from the BSA press office, or from the Association’s website at www.bsa.org.uk or Headlinemoney www.headlinemoney.co.uk

 

Rachel Wylie (née Le Brocq)

Press and Public Affairs Manager
The Building Societies Association
6th Floor, York House
23 Kingsway, London
WC2B 6UJ

Tel: 020 7520 5905
Mobile: 07773489644
Fax: 020 7240 5290
www.bsa.org.uk
Twitter – @BSABuildingSocs