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Bankers say put reforms on hold until markets and economy recover

Economy is weaker than in April when the ICB published its interim report, warns Angela Knight, of the British Bankers’ Association

The leaders of Britain’s banks are calling for the government to shelve its looming banking reforms, claiming that they could add to economic instability.

Any reforms to come out of the independent commission on banking, chaired by Sir John Vickers, should be put on hold until the economy has recovered and taxpayers have been repaid for bailing out the banks, Angela Knight, the head of the British Bankers’ Association (BBA) has said.

Knight, who represents the banking sector in the debate about the reforms, argued that it is the wrong time to add to the industry’s regulatory burden. She said the economy is still delicate and recovery not guaranteed, warning that such reforms could destabilise the economy further.

Vickers is poised to publish his final report in two weeks and is expected to recommended ringfencing banks’ retail operations from their investment banking arms to avoid a repeat of the financial crisis. The chancellor, George Osborne, will decide whether and at what pace to implement any reforms, which are highly sensitive in coalition politics with the Liberal Democrats pushing hard for radical change. Knight warned that markets and economies are even more fragile than when the ICB published its interim report in April and that imposing reforms on lenders risked denting confidence and cutting the supply of credit to the economy.

She told the Independent newspaper: “We have a high degree of uncertainty, market turbulence and lack of confidence that governments in other countries have got a sufficient grip on their economies. We are in for a very difficult autumn.

“This is, therefore, the time to concentrate on economic recovery and paying back… the government and taxpayers. By all means think about new regulation but now is not the time to add that as an overlay with respect to costs, uncertainty or whether it is going to do anything beneficial anyway.”

Previous reports have suggested that the chancellor is considering radical ring-fencing, but over a lengthy timetable, mindful of the immediate impact on the economy.

But any suggestion of a delay would be furiously opposed by the Lib Dems, who are seeking to differentiate themselves from the Tories in government.

An aide to the business secretary, Vince Cable, said: “We don’t want to pre-empt Vickers but we don’t see that tremors in the market are any excuse to delay. We need the framework in place as soon as possible so banks recover on the right trajectory. But we recognise it can’t be done over night. This is a critical part of getting the blocks in place for a sustainable recovery.”

The Treasury said in a statement: “The government set up the ICB to ask the difficult questions that weren’t asked before the crisis and this is exactly what the commission is doing. We look forward to receiving the final report on 12 September.”

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