Rachel Reeves’ legacy of tinkering with the City is not enough, says Mel Stride
Sir Mel Stride has branded Rachel Reeves’ legacy in government as mere “tinkering” with City reform as the top Tory predicted her successor will create a “hostile” environment for the banking sector.
In an interview with CityAM, the shadow Chancellor branded Reeves’ two-years in the Treasury as “managerial incrementalism,” adding it was “not enough”.
“We need a big bang two for the City, not just some kind of tinkering and incremental movement… when you talk to banks privately, that is what they will tell you.”
Reeves – who will deliver a Mansion House address next Tuesday in what is expected to be one of her final acts in the Treasury – attempted to kickstart her deregulation agenda last year, claiming overly-cautious red tape was a “boot on the neck of businesses”. The Chancellor introduced the Leeds Reforms, which she claimed would “rewire” the financial services system.
This included a crackdown on the Financial Ombudsman Service (FOS), a review into the ring-fencing regime and a campaign to boost retail investment.
Whilst industry bigwigs cheered on the moves publicly, critics quickly rounded on the reforms as “untransformative”.
The Conservatives pledged to go further in wielding the axe on regulation, with leader Kemi Badenoch declaring London was having its “lunch eaten” by overregulation.
The party’s reforms include the full abolition of ring-fencing, which requires major banks to separate their retail banking and investment banking activities, and the scrapping of the FOS.
“Don’t just try and open up a chink in [ring-fencing],” Stride said, adding that was how he would “characterise the Reeves reforms”.
The Tories estimate some £1.5bn in capital will be freed up by ripping up the seven-years-old rules – a move that is supported by Natwest, Lloyds, HSBC and Santander.
Barclays’ CS Venkatakrishnan, whose retail bank benefits from being insulated from its mammoth investment banking operations, has been the only City banking chief to launch a defence of the regime.
Battles with the Bank of England
One of the thornier parts of the Conservative’s banking bonanza is the changes to capital requirements, with the aim to bring them “in line” with competitors.
“We recognise and believe that we are not competitive, certainly with America, and it’s not entirely competitive with Europe either,” Stride said.
The decision to set lender’s capital requirements – that dictate how much of a bank’s risk-weighted assets must be funds that can absorb unexpected losses without putting the financial system at risk – rests with the Bank of England’s Financial Policy Committee (FPC).
A source familiar with the matter previously told CityAM the Tories would change the legal framework that the banking watchdog and FPC operate under when setting requirements to consider competitor jurisdictions in order to pave the way for adjustments.
Questioned on this, Stride said: “We would use whatever vehicles are necessary… whatever vehicle is required to make it very clear that the FPC does have to take into account those other jurisdictions…
“It won’t just be a request. It would be a clear requirement.”
The Bank set out proposals to relax UK capital rules in the FPC’s meeting this month, which include plans to align some of the calculations for systematically-important banks requirements with international standards.
The Bank of England has faced friction with Rachel Reeves on her deregulation agenda, with the most high-profile spat stemming from Bailey blocking a meeting – convened by the Chancellor – between Revolut and regulators amidst the $75bn fintech’s pursuit of a banking licence.
“Regulation itself is stifling new entrants or participants in the market doing things… and that’s increasingly become a problem,” Stride said.
“We have gone into this kind of cul-de-sac of trying to squeeze out every single wrinkle of risk within the system.”
He did not comment directly on Revolut’s licence bid – which took four-years before the neobank finally clinched the full-fat permit this year – but said “where it’s appropriate… you want that to happen as quickly as possible”.
Burnham Camp sees banks as ‘easy hit,’ says Stride
Reeves is expected to be ousted from the Treasury in the coming weeks when Prime Minister-in-waiting Andy Burnham takes the reins.
“What I hear from Camp Burnham is more tax, and more spending, shifting spending around but ultimately more spending,” Stride said.
For the City specifically, he said there was “anti-banking rhetoric in and around the Burnham camp”.
“I see Labour as being pretty hostile towards the banks. I think they see that they’re the most politically and easy hit.”
Jamie Dimon, the boss of banking juggernaut JP Morgan, has threatened to pull the lender’s £3bn Canary Wharf tower if the government becomes “hostile” to banks.
CityAM previously responded City banks were stewing over Burnham’s choice of Chancellor, with many fearing energy secretary Ed Miliband will take the post.
“Whoever it is, I will be ready,” Stride said, but added it “feels like more of the same” was on the horizon.
“I’m quite fearful about where all of that will lead,” he said.
A Treasury spokesperson said: “The Leeds Reforms are the biggest overhaul of financial regulation in over a decade.
“The Chancellor has cut red tape, freed up capital and ensured UK banks can drive the investment and lending our economy needs – helping savers get better returns, supporting first-time buyers onto the housing ladder and cementing the City’s place as a world-leading financial centre.”