CBI Calls for Cost Benefit Analysis of Ring Fencing Banks

Leading British Trade body, Confederation of British Industry (CBI) is calling for a more thorough probe on ring fencing banks, as it is still not convinced that the reform will lead to economic recovery but rather more to the path of great financial instability.

George Osborne’s bank retail investment “ring fencing” received a halt from the Confederation of British Industry (CBI) telling the Independent Commission on Banking (ICB) to make a “cost-benefit analysis” to ensure other businesses covered outside of the banking reform will not crumble when faced with a new financial crisis.

The ICB warned that splitting the retail and investment divisions from banks could invite otherwise opposite effects of what banks had hoped would be a safety net to their “casino” investments.

It firmly requires a further probe in order to be convinced that the British chancellor-lead proposal, will not promote riskier investments or getting stuck in a cycle.

It states, “We do not believe the Commission has made a sufficiently strong case that the ring-fencing proposals will achieve their objectives. They should not proceed with the idea unless it stands up to a rigorous cost-benefit analysis.”

It adds that the plan could end up with a “significant disruption to banks and businesses that is outside the ring-fence in the event of a crisis.” Thereby, such proposals should be made “sufficiently flexible” to consider its effects on each trade’s unique businesses models, as ring fencing all banks will uniform them, thereby limiting competition.

“A one-size-fits-all solution would force all banks to have the same business model, which would stifle innovation, reduce competition, increase costs and hamper growth.”

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