BANKS must not use reform of their sector to increase the cost of borrowing to small firms, says the Federation of Small Businesses (FSB).
The Independent Commission on Banking (ICB) published its recommendations for the banking sector yesterday.
As had been widely predicted, the report called for the banks to ring-fence their high street and investment divisions as part of a wide-ranging package of reforms it said should be put in place by 2019.
The proposals, which will cost the banks an estimated £4bn to £7bn a year to implement, have already been opposed by the major banks.
They have claimed they will reduce the amount of money they are able to lend and will push up the cost of finance.
In addition, they have warned that ring-fencing may damage economic growth and the recovery. There are also concerns among the banks that the proposals will mean the end of the implicit Government guarantee to bail out a bank that is in trouble.
But the FSB argues that the guarantee is likely to remain in place for the retail banks – the sections that lend to small businesses and individuals. It also called for a swift implementation of the ICB’s proposals.
FSB national chairman John Walker said: “The banking sector cannot be too big to fail as the taxpayer cannot afford another bank bailout.
“The Government has a golden opportunity to reform the banking sector and it must stand by the promises that it has made.
“The recommendations that the ICB make must be looked at closely and the Government must act on them as soon as possible and ensure they are completed before the end of the next general election.
“The Government must use this once-in-a-lifetime opportunity to make the banking sector safer, more competitive and less burdensome on the taxpayer.”
Latest statistics from the FSB showed one in four respondents had experienced a rise in the cost of finance in the two months leading up to the report’s publication.
Of those, almost half said the increase was between 2% and 3%.
The banking sector cannot be too big to fail as the taxpayer cannot afford another bank bailout