Barclays Plc Chief Executive Officer Robert Diamond said the Independent Commission on Banking won’t recommend the forced breakup of British lenders into consumer and investment banks.
“Of course we don’t want to be split up,” Diamond said in a Bloomberg Television interview at the World Economic Forum meeting in Davos, Switzerland. “What Sir John said at the weekend is that’s not really one of the options.”
ICB Chairman John Vickers, an Oxford University professor and former Bank of England economist, said on Jan. 22 that he was examining the ring-fencing, or subsidiarization, of investment- and consumer-banking units, while ruling out a full break-up. Barclays, HSBC Holdings Plc and Royal Bank of Scotland Group Plc yesterday made their strongest attack to date on possible ring-fencing, calling such proposals “misguided” and saying they introduced “needless complexity” that may damage financial stability.
“The integrated, universal banking model is safer and sounder and better for jobs and economic growth, so we’re confident that this will come out in the right place,” said Diamond, 59.
Standard Chartered Plc Chief Executive Officer Peter Sands told BBC Radio 4 today that while it was appropriate to consider subsidiarization, “the more you fragment an institution, the more you make it more expensive to deliver services and you probably make it riskier because a more fragmented institution is less resilient.”
The five-member inquiry is halfway through its examination of the industry which seeks to increase competition and financial stability. It will report to Chancellor of the Exchequer George Osborne in September.
“Separation would effectively force investment banks to operate on a less stable funding basis,” Barclays, the third-biggest U.K. lender, said yesterday.
An enforced breakup of British banks would hurt their value, said David Cooksey, chairman of U.K. Financial Investments, which manages the government’s bank stakes.
“There would likely be a diminution in value” of taxpayer stakes in RBS and Lloyds Banking Group Plc were such a decision to be made by the ICB, Cooksey told the House of Commons Treasury Committee today.
Asked whether there was a return of swagger among bankers, Diamond said, “I don’t think there’s any swagger at all.” On Jan. 11, Diamond told a House of Commons committee that it was time that banks stopped apologizing and started rebuilding confidence.
‘Financial Maginot Line’
Investment banking flows in the fourth quarter of 2010 were good, Diamond said today. He declined to comment on how fixed-income trading performed during the same period.
Higher capital and liquidity requirements, being considered by the ICB and regulators worldwide, will make banks less efficient and harm the economy, Sands also said today.
Larger capital requirements may be a “financial Maginot line - enormously costly to construct, but nonetheless in and of themselves ineffective in creating a defense against bank failure,” HSBC said yesterday.