Appeal for level playing field to increase bank competitiveness

FINANCIAL experts last night called for competition amongst banks to be improved to create a level playing field between organisations and a fairer system for businesses and individual customers.

Clare Spottiswoode, a member of the Independent Commission on Banking (ICB), led a public debate on the role of UK banking at Leeds University, to give people the opportunity to contribute to its formulation of recommendations to the Government.

She said: "It's a difficult industry (banking) because things aren't simple. There needs to be effective competition where we deal with the barriers to entry for smaller institutions. None of this has ever happened in financial services. There has been competition but it has been distorted by all sorts of things deep in the financial sector and difficult to get to."

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Doug Campbell, senior executive manager at Yorkshire Bank, said more competition would address access to funding problems experienced by small-and-medium-sized businesses. "We are keen to think about some of the options that may exist to increase competition in that area," he said.

Diversity within the regulatory system would help to increase competitiveness, according to Francesco Vallascas, of Leeds University Business School. "Not all banks are the same so they don't all need to be regulated in the same way," he said.

Mr Campbell added: "Big banks will look after their own interests and say that because there are new banks it is proof that competition is working. Smaller banks will say they can enter the UK but they can't grow. There are disproportionate costs on smaller banks. It's going to take some bold steps to get the market more efficient and effective in the UK."

Professor Nick Wilson, of Leeds University Business School, called for a rebalancing of power to take place within the banking system. He said: "Not only are businesses starved of cash but there is also a regional imbalance – it has been a bit too London-centric in the past."

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Howard Kew, chief executive of Financial Leeds, said banks in the region should be given the freedom to make decisions on the ground.

The event at Leeds University was the first in a series of debates arranged by the newly-formed Independent Commission on Banking.

The commission, chaired by Sir John Vickers, has been charged with considering reforms to the UK banking sector to promote financial stability and competition and to make recommendations to the Government in September 2011. It has not been asked to consider the issue of bonuses.

The inquiry will also look at whether banks' retail and investment operations should be split.

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The reform is one of a number of options being considered, although some in the City believe that the commission will stop short of recommending the split.

Instead they think it will call for them to be restructured in a so-called subsidiarisation model so that their different divisions have to hold their own capital.

Supporters favour this approach because they say it would make banks safer by ensuring that a retail bank, which holds customers' deposits, could be guaranteed while the investment bank could be left to fail if things went wrong.

Critics argue it would increase the cost of investment banking because the division would be unable to rely on the strong credit rating of the whole group and instead have to raise funds against its own riskier business in the market.

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Last night's debate in Leeds formed part of the evidence-gathering process. In September the commission published an issues paper which invited submissions from all interested parties and banks have been busy responding.

Another consultation paper will be published next spring outlining proposals before a final paper is published next autumn detailing a series of recommendations for the Government. Chris Cummings, chief executive of TheCityUK, an independent membership body, promoting the UK financial and related professional services industry, said: "It is good to see the ICB are taking the time to go out and listen to people outside the London hothouse."

Sir John and Ms Spottiswoode, the former director-general of Ofgas, form part of the five-strong commission with Martin Taylor, a former chief executive of Barclays, Bill Winters, the former co-chief executive of JP Morgan, and Martin Wolf, the chief economics commentator at the Financial Times.

Ms Spottiswoode currently chairs Gas Strategies and is European chairman and non-executive director of Energy Solutions, a US nuclear waste company.

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It's going to take some bold steps to get the market more efficient and effective in the UK.

The economist in the hot seat

THE Government appointed John Vickers, a former Bank of England chief economist, to chair the Independent Commission on Banking in June.

He will produce recommendations on how to improve the safety of the financial system, reducing the risk of future taxpayer-funded bailouts, and competition.

The commission stressed it has not settled on any options at this stage but Sir John said "hard questions" needed to be asked.

The recommendations are due by September 2011.

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