Bankers’ efforts to water down tougher new regulations by claiming they will harm economic growth are “intellectually dishonest and potentially damaging” and could inspire an even more robust crackdown, a leading UK regulator has warned.
“A profession which should stand for integrity and prudence now supports a lobbying strategy that exploits misunderstanding and fear,” said Robert Jenkins, who was named in July to the 11-member Financial Policy Committee, a new body charged with protecting financial stability.
Responding to bank executives’ warnings that the Basel III capital and liquidity standardscould force them to cut lending and raise rates, Mr. Jenkins said the lobbying was “dishonest because it is untrue“.
“Banks can strengthen their balance sheets without harming the economy. They can do so by cutting bonuses, by curtailing intra-financial risk-taking and by raising term debt and equity,” he said.
Mr. Jenkins, a plainspoken former investment manager from F&C Asset Management, spoke in London the evening before the FPC is due to meet to identify risks to financial stability and recommend how to deal with them. While the FPC will not have a legal mandate to force change until the planned financial reform bill is enacted next year, its members include the senior leadership of both the Financial Services Authority and the Bank of England. In previous meetings it has warned banks to use profits to amass capital and cut dividends and bonusesrather than reducing lending.
The FPC will also consider a sobering Bank of England survey, which reported that fears that the UK financial system would be seriously disrupted in the next three years were at their highest level since 2008.
Risk managers at big banks, hedge funds, insurers and asset managers told the latest Bank of England systemic risk survey that a sovereign debt crisis in the euro zone and a downturn in the global or UK economy led the list of threats.
Confidence in the UK financial system is also at its lowest level since 2009, with 28 percent reporting that they were “not very confident” while another 57 percent said they were only “fairly confident”.
These bleak responses, recorded in surveys conducted in September and October, reflect a marked deterioration in the outlook over the past six months and rising concern that the euro zone crisis will drag down the UK as well.
In his speech, Mr. Jenkins said that bankers’ warnings about the potential impact of tougher regulation were contributing to the apprehension. “It promotes fear for an economy which the banks are there to serve and from which they draw their livelihood,” he said.
Amid the gloom, Lloyds, which is scrambling to restore stability in the wake of its chief executive taking medical leave, said it would attempt to stimulate the broader economy by launching fresh commitments to increase lending to small businesses next year
John Maltby, director of commercial banking, said lenders had “woken up to the importance of SMEs” in stimulating growth. Calling the current climate the “worst in a generation”, he said: “We could just sit on our backsides thinking woe is us—or we could try to change it.”
Lloyds, which is particularly vulnerable to the health of the UK economy, will pledge to lend £12 billion ($18.7 billion) to SMEs in 2012 as it tries to reverse falling revenues.