The UK think tank Policy Exchange has warned that imposing a ring fence between retail and investment banking could mean the end of free banking.
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Policy Exchange’s report criticizes the measures outlined in the legislation, saying they may make it difficult for banks to serve rich individuals and small companies, causing them to take their business abroad and eroding the bank’s revenue base.
According to the report, average customers and SMEs, given the fact that they will not be allowed to bank outside the ring fence, will have to pay the consequent mixture of higher costs and lower revenues,
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By GlobalDataThe report then goes on to give a list of recommendations, aimed at structuring a ‘flexible’ banking ring fence.
The banking reform bill, which is going through the UK parliament and could be passed as law before Christmas, features measures allowing bankers to be charged with reckless misconduct.
It will also create what government figures have called an "electrified" ring fence between retail and investment banking operations, in a way similar to the US ‘Volcker rule’.
Stuart McWilliam, a campaigner for Global Witness, said: "It gives the FCA the power to hold the most senior bankers personally responsible for failure at their banks".
On the other hand, uncertainty and fear around the measures has been expressed by law firms in the City of London.
Bob Penn, a partner at City law firm Allen & Overy said: "The issue is getting something that is workable and that does not throw sand in the wheels of ‘good’ financial activity, such as trade finance".
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