Sweeping banking reforms will hinder recovery
Sweeping regulatory reforms to the banking system in the United Kingdom will hinder the recovery of the economy as stringent rules reduce lending, according to a Datamonitor report.
Financial services analyst Rod Logan, the author of the report, said stringent regulation, while intended to prevent a recurrence of the banking crisis, would curb banking activity and reduce lending. This move would return banking to the boring banking environment before the market liberalisation of the 1980s.
Datamonitor also found that the shift in consumer attitudes to cut spending would also push banks to adopt a more conservative spending model. More than 63 per cent of consumers said they would cut their credit spending because of the downturn.
Logan said that consumers were more wary of the bank’s intentions because of the crisis and would take more personal control of their finances.
The most likely reforms that would be implemented would be to force banks to build up their capital reserves to cope with further constrained economic activity, and reform the liquidity regime, which would maintain tight lending conditions for years, the report said.
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