Chancellor George Osborne has refuted claims that stricter regulations could lead to Britain’s biggest banks abandoning London.
Despite warnings from some institutions, Osborne stressed that stricter regulations will not damage the City’s competitiveness against rival financial centres. He also pointed out that regulations are tightening across the globe so banks in alternative locations would find themselves in the same predicament, The Financial Times reported.
Speaking to the Treasury Select Committee regarding the Vickers banking reforms, he said: “[Looking at] other financial centres – the US has Dodd Frank, the eurozone the financial transaction tax and Asia has political issues. The UK is a fantastic place to be located.”
Although the financial services sector remains powerful and vitally important for Britain, Osborne said it is important for other parts of the economy to grow. He stressed that he is not “doing down” the City, but said it needs to become a “smaller slice of the cake” to create a more balanced economy.
Last month the chancellor announced his intentions to implement all of the reforms suggested by Sir John Vickers’ Independent Commission on Banking. These include forcing banks to “ringfence” retail and small business operations and introduce fresh investments in this area.
There have been concerns that the plans could be dashed by the European Union and that they could drive up the cost of loans for firms and individuals. But Osborne said: “We are confident we can achieve what we want to achieve.”
He also pointed out that additional costs can be soaked up by other means instead of passing them on to customers, suggesting that reducing bonuses could combat the shortfall. He said: “Banks could reduce – shock horror – their remuneration package.”
With many businesses and households struggling in the current financial climate, Osborne reiterated his desire for banks to dramatically reduce the bonuses afforded to City executives. He drew particular attention to Royal Bank of Scotland, which is 83 per cent owned by the taxpayer.
Although Osborne conceded that it is impossible for the government to block a one-off bonus of more than £4m for the head of RBS’s investment banking division, he promised that he would take a “keen interest” in fresh bonuses. He highlighted that the Bank of England has stated bonuses should not be paid by banks who need to build up capital buffers and that regulators will check those stipulations are being met.