Banking reforms could cause double-dip recession

A leaked PwC report indicates that a planned overhaul of the banking system could plunge the country back into recession.

The report is said to have been prepared by PwC on behalf of major banks including Barclays, HSBC and Royal Bank of Scotland, and warns that plans to reform rules governing the amount of capital and liquidity banks must hold could have a negative effective on the economy.

GDP is currently forecasted to grow 1% in the current financial year and 2% next year, but the overhaul could knock two full percentage points off economic growth, it warns.

According to Sky News, the report (which has not yet been completed) was intended to be circulated in Whitehall after the general election, but the latest version has been leaked.

When questioned about the study during a visit to the West Midlands, Gordon Brown told reporters: "We have got to reform the banks, the banks have got to serve the public. Here in the West Midlands, businesses are telling me every day that they need a better deal from the banks and the recapitalisation of the banks and a proper system of remuneration ... is absolutely crucial to the future of British industry and the future of everybody who is a homeowner in this country.

"So we will continue our programme of reform of the banks, but differently from the Conservatives and Liberals. We are working with other countries to make sure this is internationally agreed reform."

He added: "We are taking the right decisions and the message to the banks is they will have to pay back every single penny they have received from the government."

Liberal Democrat shadow chancellor Vince Cable was quick to rubbish bankers' warnings, arguing: "Given the scale of the bailout the financial sector has received from the taxpayer, this kind of scaremongering from the City is simply whinging.
 
"Most UK banks are now holding capital far in excess of regulatory requirements and continue to pay out huge bonuses while starving solid small and medium size businesses of credit. Banks need to understand that they cannot go back to business as usual.
 
"This is not the time for banks to be complaining about tighter regulatory controls, it is the time for them to be lending to good British businesses to safeguard the recovery and safeguard people's jobs."

The British Bankers' Association released a statement in response to the news which read: "The industry has always said that it is at the table for change but at the same time it is essential to assess the impact of these changes on the wider economy and the PwC analysis will be a vital contribution to both UK and international discussions including the G20 process. Other countries are also undertaking similar work.

"The analysis is yet to be completed but we will at all times be discussing with the various authorities the issues that arise from the study."

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