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BBA warns ring-fence reforms will hit economy

British Bankers’ Association chief executive Angela Knight has warned bank reform plans set to be published tomorrow risk undermining the UK’s economic performance.

The Treasury will publish a white paper on the Bank Reform Bill ahead of Chancellor George Osborne’s Mansion House speech tomorrow night. It will be based on the recommendations of the Independent Commission on Banking.

In a speech at a City and Financial conference this afternoon, Knight said measures set to be included in the paper will hit banking and have a knock on effect for the wider economy, something members of the ICB reject.

“A growing economy requires a vibrant banking sector to finance it. This is not special pleading on behalf of the industry, it is special pleading on behalf of the country,” she said.

The ICB’s final report, published in September 2011 said banks’ retail arms should be ringfenced from riskier investment operations and made to hold more capital. It also said services to customers outside of the European Economic Area should not be within the ringfence.

Knight said the measures mean some personal wealth management by banks will sit within the ringfence while non-EEA wealth management will have to sit outside it. “This is nonsense, the UK is shooting itself in the foot and there needs to be some better thinking in that area,” she said.

In the US similar reforms have been introduced through the Volker rule which bans deposit taking banks from proprietary trading. Knight said this means British banks operating in America will be “Volkered and Vickered”, a reference to Sir John Vickers, chairman of the ICB.

She said: “Again this does not make sense and it is in areas such as these where the UK policy must now seriously address what is happening internationally and link this country in better with international changes.”

The BBA is also worried about plans to increase the level of capital and liquid assets banks will have to hold, warning it will hit lending levels.

In October, Vickers rejected claims the ICB’s proposals would dramatically increase the cost of bank lending, insisting it will push up costs by just 0.1 per cent of banks’ collective UK balance sheets, estimated to be around £6trn.

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