Public being asked for their views on the future of banking in the UK

News - Banking

Written by Ray Clancy

Friday, 05 November 2010 09:46

The UK’s Independent Commission on Banking is seeking the views of consumers, businesses and other interested parties at five public events between now and Christmas.

The Commission has been asked to consider reforms to the banking sector to promote stability and competition and wants to stimulate a wide debate on these issues following the publication of its Issues Paper last month.

These include events in Leeds, Edinburgh, London and Cardiff and come against a background of debate over what happens next. The Office of Fair Trading (OFT) has published its review of barriers to entry in retail banking and consumer champion Which? says it hopes that bad banks will be allowed to fail.

‘Banking competition won’t become a reality until bad banks can be allowed to fail. Since the Future of Banking Commission report, Which? has been clear that big banks are risky to competition and risky to the UK’s financial stability,’ said its chief executive, Peter Vicary-Smith.

‘If we want a healthy banking sector it’s vital that we find more ways to encourage good banks to enter the market and grow. Public interest tests must be also applied to the disposals of UKFI’s bank shareholdings as well as the divestments required by the European Commission, so that the sales enhance competition and consumers end up with a banking system that truly meets their needs,’ he added.

The Future of Banking Commission was set up by Which? in January 2010 to ensure that the public had an opportunity to voice their opinions about the future of banking. It took the form of four select committee style evidence sessions with witnesses including Mervyn King, Lord Myners and Lord Turner as well as executives from the UK’s largest banking groups. It also took evidence from consumers, which was gathered at the Which? Big Banking Debate in February 2010.

It has proposed 39 recommendations to the new Government on structure, regulation and culture of the banking industry which add up to a radical overhaul of the banking system that would prevent the last crisis from reoccurring, but which also address the systemic problems which have destroyed the trust between many banks and their customers.

It recommends the setting up of new safe haven accounts which carry a 100% guarantee protection. Funds in these accounts would only be invested in safe assets. It also recommends that depositor protection should include reform to the bankruptcy procedures so that the rank of creditors is changed to put depositors at the top.

When it comes to regulation it recommends that Banks’ boards, not regulators, should take primary responsibility for the management and stability of their banks and regulation should encourage competition.