UK financial crackdown could scare lenders away as regulatory body prepares damning report on failed banks

News - Banking

Written by Ray Clancy

Tuesday, 05 January 2010 10:30

Britain's regulatory crackdown on banks could push the sector into a decline similar to the one suffered by its steel and shipbuilding industries, it is claimed.
The British government risks imposing tougher constraints on its banking industry than other countries, eroding the sector's international competitiveness and potentially forcing some lenders to relocate overseas, according to Angela Knight, chief executive of the British Bankers' Association.
‘The UK has a record of building up great industries such as in steel, shipbuilding, and engineering. It also has a history of losing them. Be angry at the banks by all means, but it would be the height of irresponsibility to lose this industry as we have done with others so many times before,’ said Knight, the head of the UK's main banking lobby.

Knight added that the government's one-off 50% tax on bankers' bonuses, announced in December, had already led some foreign banks to consider leaving Britain. ‘Because no other country has curbed pay deals in the same way, overseas banks operating here are now very concerned and considering their long-term commitment to this country,’ she said.

The bonus tax, aimed at curbing payouts deemed excessive in an industry that had to be bailed out with public money after last year's global financial crisis, comes on top of a new 50% income tax rate on earnings over £150,000.
Rising personal taxation, along with proposals for higher capital requirements and new rules obliging investment banks to put in place potentially costly disaster recovery plans, have stirred fears that London could lose business to rival financial centres such as New York and Hong Kong.

Meanwhile an investigation by the Financial Services Authority into the problems at Britain’s failed banks is expected to reveal a litany of internal breakdowns and flawed controls that masked the full extent of their failings.
The regulator has been conducting a full-scale supervisory review of Royal Bank of Scotland, HBOS and Bradford & Bingley since last April and report on its findings is expected to be published within weeks.