Responding to the Independent Commission on Banking’s interim report, Prof Philip Booth, Editorial Director of the Institute of Economic Affairs, said:
"Whilst some measures suggested in the report are welcome, the ICB focuses too much on regulatory mechanisms to ensure that banks have sufficient capital to prevent failure. A competitive market requires banks to fail and their orderly failure should be the key objective of reform. It was also disappointing that the important issue of the over-taxation of equity capital, flagged by the Chairman of the Commission Sir John Vickers in a recent speech, has been side-lined."
Some of the proposals in the Banking Commission's report are welcome. However,
1. The Commission have placed too much emphasis on regulatory mechanisms to reduce the probability of failure and not enough on market mechanisms.
2. The Commission’s proposals for higher capital requirements will run directly contrary to its desire for more competition. Higher capital requirements would make failure less likely and would therefore entrench large firms. Capital requirements are also a barrier to entry for new firms.