Group: Don’t break up British banks

LONDON: British banks must not be broken up as a result of a government review on the sector since this could harm the Britain's role at the helm of global finance, the Confederation of British Industry (CBI) said.

The CBI, which is Britain's main business lobby group, added that the sector had to tackle ongoing public anger over large bonuses for bankers, while ensuring that British banks could still attract top talent.

Britain set up the Independent Commission on Banking (ICB) last year to examine a possible shake-up of the industry after the credit crisis, which saw top lenders such as Royal Bank of Scotland and Lloyds needing taxpayer bailouts.

The ICB is currently examining whether or not to split up companies' retail banking operations from their investment banking arms.

It is due to publish an interim report in April before a final report in September.

The CBI said it made a submission to the ICB in which it warned against a full break-up of the banks.

“We believe that breaking up banks would be a mistake. We need a strong banking system to help support the economy and growth,” said CBI director-general John Cridland yesterday.

Despite calls from politicians to cull the investment banking industry, many industry members and analysts say it is unlikely that British banks will ultimately be forced into a full break-up.

Most universal banks, with activities ranging from trading to retail banking, proved stronger in the crisis than many “narrow lenders”, such as mortgage and retail specialist Northern Rock which nearly collapsed and had to be nationalised.

Britain's banking industry is dominated by the “Big Four” of RBS, Lloyds, Barclays and HSBC.

Last month, ICB head John Vickers hinted that the ICB was unlikely to recommend a formal break-up of the banks but could support plans to distance banks' retail arms from their trading units via a form of subsidiarisation.

This would entail “ring-fencing” retail banking operations so that depositors' funds would not be used to subsidise more risky investment banking activities.

The CBI said it backed plans to strengthen the capital of banks and supported moves for companies to have contingent capital securities. These are bonds that turn into equity if a bank hits trouble, thereby bolstering its capital position.

The CBI added that it was vital to address concerns over banks' bonuses, with many members of the public still angry that an industry blamed for causing the crisis could use taxpayers'money to award its staff large salaries.

“Addressing the bonus culture is part of winning back trust,” said Cridland.

“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.” he added. Reuters