Banks face a new social contract
The reforms will redraw the “social contract” between banks and the public.
Lenders will have to behave more responsibly, simplify their operations and accept lower profits in return for implicit taxpayer support.
The industry has “to face the fact… that financial institutions are systemically important in a way that other businesses are not”, Stephen Green, the chairman of HSBC, said.
In speeches at the British Bankers’ Association’s conference, Lord Myners, the City Minister, Paul Tucker, the deputy governor of the Bank of England, and Lord Turner, the chairman of the Financial Services Authority, sketched their visions for the future. They called for:
* a complete restructuring of “too big to fail” banks to permit an “orderly wind down” in the case of failure.
* greater capital and liquidity requirements.
* an overhaul of how the deposit protection scheme is funded
* a closer link between executive and staff pay.
Only by accepting reform will public trust be restored, they said. The proposals will “not be cheap” for the industry, which will have to accept “lower returns on equity in the future”, according to Mr Tucker. Lord Turner added that extra “costs may simply have to be accepted”.
Mr Tucker said these are “the rules of the game, or ’social contract’, within which banks need to operate in future.”
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