The Independent Commission on Banking has delivered its much anticipated report on the future of the banks in the UK.
On the face of it I would imagine that three of the big four namely HSBC, Barclays and RBS will be somewhat relieved that the commission appear to be recommending that they do not have to separate or spin off their investment arms from their retail activities. However they are likely to have to hold considerably more capital to shield us, the taxpayer, from having to come to their aid in the way that was required in 2008/09.
Furthermore, it is likely that the retail operations of the business will have to be ring-fenced in some way to ensure that they are not exposed to any excessive risk taking that the investment banking division choose (perhaps in hindsight unwisely) to undertake.
What has this got to do with mortgages you may ask? Well if banks are forced to hold more capital relative to potential losses this is likely to reduce the amount of money that they can allocate for the differing aspects of their business including possibly restricting the amount of funds that they choose to lend in the form of mortgages. Furthermore it will probably mean the cost of setting aside additional reserves will be passed on to us the consumers in the form of higher interest rates and charges.
At present all of this is at proposal stage but it is ultimately likely to be adopted both here in the UK and in the wider international community as governments through organisations such as the G8 and the G20 gain consensus and the adoption of universal practises to try to create a level playing field.
Brian Murphy is head of lending at Mortgage Advice Bureau.
Comments
@Simon
Yes, higher interest rates are a BRILLIANT idea. Over the last 13 years we have had a house price boom that has seen millions of people increase their mortgages to truly breathtaking levels - we have had a banking crisis requiring us to bail out the banks and causing the banks to cut mortgage lending radically - we have the housing sector (which, like it or not, is a major driver of the economy) on its knees and your, incredible, amazing solution is interest rate rises - to make damn sure that the vast majority of people have even less disposable income to spend.
Where did you get your economics degree?
And, finally, there is no divine law that says that just because you put your money in a bank you are entitled to high, risk-free returns on your money. 2% interest is plenty for taking no risk. If you want more return - invest in a business.
The way round this is higher interest rates to encourage more people to save. Banks plush with savers can lend more money out. Also mortgages should be limited to 3-4 times salary thus allowing more people to be loaned too.
Lets allow house prices to fall to normal levels and a return to sustainable banking.