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Measuring the impact of the Banking Reform Bill

Designed to strengthen regulation in the financial services sector, the Banking Reform Bill is also tipped to provide greater transparency to the industry. There has been much talk on the changes which banks will be required to make and the banking reform White Paper published on the 14th June offers the financial services industry welcomed details on the transformation challenges ahead.

The Bill means huge changes for the banking sector. The impact for banks can be explored across four broad categories:

Cost to implement
The high cost of ring-fencing (the separation of retail and investment banking divisions) for universal banks will be significant over the coming four years. It is reported that it will cost the industry £3.5 billion to £8 billion a year and potentially reduce GDP by between £800 million and £1.8 billion. Operations, IT, treasury, compliance, governance and customer segmentation will all lead to a financial burden for banking institutions. Costs will likely be transferred to the consumer.

Capital adequacy
Having to hold a higher proportion of capital to protect against potential losses will create a burden of raising these funds on banking customers. This is likely to kick start the end of free banking as banks can no longer subsidise retail operations with profits from their investment businesses. The cost of borrowing is therefore likely to be driven up.

Customer leakage
Within the Banking Reform Bill are proposals to make it easier for consumers to switch their account from one bank to another. This legislation is due to go live by September 2013. Banks will have to align both their customer retention strategy and product sets to allow themselves to retain customers.

The Banking Reform Bill is a UK only legislation. The impact of the Bill on banking entities can’t be underestimated. Moving headquarters, offshoots and subsidiaries away from the UK could be a viable option to avoid both the Capital Adequacy requirements as well as the high implementation costs to meet these.

The reasoning behind the Bill is clear. Greater transparency and better control of the banking sector could prevent future turmoil and a repeat of the global financial crisis. However, consumers are likely to find themselves with higher banking fees as a direct result as banks struggle with high implementation costs.


James, thanks for the insight into this piece of UK regulatory reform. Although I have heard of it I wasn't aware of it's impact on UK banking business. You mention that parts of UK banking business would find it's way abroad, which at a first glance might seem sensible. On the other hand it is to be expected that the "onslaught" of even more regulation world-wide (i.e. Basel III, MiFIR, EMIR, Dodd-Frank and more) will level the playing field fairly quickly.
What I wholeheartedly agree with is the fact that Banking Reform Bill gives banks the opportunity to go out to it's clients again to regain trust. Banking is all about trust and having the regulation in place is only the framework, in which banks can create better, more innovative and customer-centric solutions - as Henry Ford put it: "A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large."
Best, Tom

It differ from bank to bank, meergr to meergr. For example Citigroup meergr made it congolomerate resulting in offering more product at lower cost with wider network whereas PNB meergr with NBI made PNB itself sick resulting in eroding networth of the PNB shareholder and customers.Again at same time Big bank may sometime became little less argile resulting in degradation of service.So it depends on how it executed, what kind of synergy is there in meergr and accordingly it will depend on the effect on the consumer.

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