Commenting on Vince Cable’s assertions today that banking reform will go ahead, Mark Littlewood, Director General of the Institute of Economic Affairs, said:
“These proposed reforms will not safeguard banks, but will instead merely raise the cost to the consumer for retail banking.
“Vince Cable is right to assert that taxpayers should not be liable for any future banking collapse. But he is wrong to think that ‘ring fencing’ of retail and investments banks will make much difference. Northern Rock was a retail bank without an investment arm, Lehman Brothers an investment bank without a retail arm. Ring fencing would have saved neither. Banks – like any other business – must be allowed to go bust without bringing down the wider economy. It is difficult to see how the current proposals would allow this to happen.
“At a time when economic growth is exceptionally fragile, it would be highly damaging to force through any reforms which will increase the cost of banking for customers or make credit harder to obtain for businesses. The government must allow the economy to flourish if growth is to return – further interference and ever more regulation simply will choke any chance of recovery.”