Vol 7 (2010) - Issue 6

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Bank Reform in the UK: Part I – The Future of Banking Commission

1. Responding to the crisis

The banking crisis led to a range of domestic and international inquiries, agreements and reforms too numerous to absorb. Not surprisingly, it is on the domestic front that most of the significant change has occurred. This article and its companion look at two different sets of proposals for the reform of UK banking and its regulation. The first article concentrates on an independent report, initiated by the Which? consumer organisation, that looks at the crisis primarily as an opportunity to reshape banking around customer satisfaction. The second article discusses the more mainstream approach of the government's proposals, which lean to a characterisation of the problem that focuses on regulation, although the article also touches on the Independent Banking Commission (IBC), which has been established to consider many of the same issues that were discussed by the Which? inquiry.
An upside of the crisis seemed to be that it might bring some unity of purpose across the world, if only over finance. Government leaders reached important agreements on additional funding for the IMF and various other measures. They also promised coherent reforms to bank regulation, but relatively little concerted action has followed: there were some changes in the international regulatory architecture, including the establishment of the Financial Stability Board to monitor global risk, and modification of the capital adequacy rules (Basel III). Issues of domestic politics and competitive advantage prevented expressions of intent from fully translating into new rules and practice. This did not mean governments were not keen to take action against the banking industry, but in many cases proposals for reform were caught between the need to be seen to be doing something and nervousness about the impact of change on a fragile domestic financial industry. As a result, the focus tended to rest on the rescue of the sector, while problems remained ill defined and reforms rather insipid.