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The challenges of the financial and economic crises that have faced the United Kingdom and its banks over the last years, along with those from many other countries, have been the most severe in living memory, and 2012 began with substantial uncertainty over the near term outlook. However, despite the challenges faced, British banks and the UK economy entered this year in a relatively strong position compared to many of our European neighbours.
Yet, we are entering a state of unprecedented change in the financial sector. The British Bankers’ Association and Accenture brought together a group of senior bankers, business leaders, politicians, academics and commentators to discuss the state of the UK’s banking sector and the way forward in these volatile times. This paper captures the themes of the discussion and sets out the key issues for this year. Importantly, it seeks to start a debate about how to bring about change in the financial services sector in a way that is open and straight forward.
The banking sector in the United Kingdom is unique in its size, breadth and diversity. The UK, and not just London, is home to a large domestic banking industry and a large international industry. The domestic sector is predominantly centred on personal and corporate lending, whereas the international sector helps to enable the functioning of global capital markets and provides investment management services from the UK to corporations, governments and individuals around the world. A strong, healthy and well regulated banking sector is not only vital to support domestic economic growth through lending and the productive investment of savings, but also key to continuing to capture the UK’s outsize share of the global financial services industry. While the political debate has at times focused on the need to decrease the dependence of the UK economy on the financial services sector, the sensible outcome is to grow our manufacturing and services industries rather than to shrink the financial sector. And for this growth to take place, access to capital, finance and support in expanding into growing overseas markets is critical.
The very real possibility of European recession and further weakness of sovereign debt will have repercussions for the UK economy.
Many of the issues banks face today are the legacies of the pre-crisis environment.
Continued uncertainty around global regulation poses a risk for banks that are both headquartered and operate in the UK, and also to the UK’s position as a leading global financial centre.
The impact of regulation is not simply the burden of change, but the greater regulation of some banking activities, a fundamental increase in the cost of financial intermediation and a restructuring of the business and operating structure of companies.
UK domestic retail and commercial banking must also look to the development of a stable, profitable and sustainable business model in the future.
A key set of questions around the future of the industry and its practices remain to be resolved that will determine how, and by whom, financial services will be provided in the UK, and what role British financial services will play globally. A balance should be sought between the many different stakeholders to achieve answers to these questions.
Accenture and the British Bankers’ Association hope that this paper will further this important debate on the future of the banking sector. Questions to be addressed include:
What should be the realistic expectation of the banking industry and what is the role in society the industry should play?
How is the balance between good quality regulation, a secure and stable industry and the reasonable expectations of financial companies and their owners to be achieved?
Does the UK have the right business model for retail banking? Should UK retail banks change their model and move towards the paid for banking model of other countries?
How do we address conflicting rules, regulations and commentary from the domestic and international banking industries going forward and especially in light of the UK’s role as a global financial centre?
The success of the British banks is symbiotically bound with the growth and strength of the UK economy. Finding the right business models and balances between risk, stability and profit for a successful financial sector is the key challenge facing the industry, politicians and regulators in 2012.
May 4, 2012
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