Now Is Not The Time For A Light Touch On Banking30 Mar 2022 09:26
October 2008 was a dark month for British lenders. The taxpayer bailouts necessary to avoid another Lehman-style bankruptcy cast a long shadow over the sector. The Royal Bank of Scotland was the costliest collapse and rescue in the world; its chief executive, Fred “the Shred” Goodwin, is still remembered as the unacceptable face of British banking. Only now, 14 years later, is the pall beginning to recede. For the first time since the financial crisis, the government stake in RBS — renamed NatWest Group — is now less than 50 per cent. NatWest’s return to private sector control was rightly heralded by the Treasury as an “important moment” — and an indicator of a bright future for British banking
Whether the second half of that prophecy holds true depends on the pendulum of post-crisis regulation not swinging too far the other way. Short memories, Brexit, the banking lobby, difficult trading conditions brought on by the pandemic and now war, have all given momentum to arguments that now is the time to unpick regulatory precautions in an effort to boost profitability and lower credit costs.
Deregulatory moves are being contemplated by the government. The Bank of England has indicated an openness to relaxing some of its restrictions around mortgage lending. The Treasury is finalising its consultation on the post-Brexit regulatory framework, including whether the Financial Conduct Authority and the BoE should be compelled to ensure the competitiveness of businesses. Sam Woods, a deputy BoE governor, has rightly voiced concern that reviving such a mandate and making it a primary objective would be “genuinely a bad idea”.
Economic headwinds indicate that now is not the time for complacency on banking regulation. Low growth prospects, paired with rising prices and high interest rates are a recipe for the kind of “stagflation” that could see individuals and businesses struggling to pay their debts. The risks are manifest, but where they may ultimately materialise remains uncertain. This is exactly why, post-crisis, banks have been required to build up liquidity and capital buffers. These precautions should enable financial institutions to sustain losses without threatening their solvency or capacity to allocate credit to the broader economy.
https://vigourtimes.com/now-is-not-the-time-for-a-light-touch-on-banking/
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