Cable turns on banks for trying to slow reform

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Vince Cable has accused British banks of trying to use the economic crisis in the eurozone to "create a panic" and delay industry reforms.

The business secretary, who has long called for banks who offer investment and retail services to be separated, said reforms were urgent.

The Independent Commission on Banking (ICB) is due to report on September 12 and the Lib Dem minister said the fact there were still concerns about the collapse of large financial institutions was "all the more reason for grappling with this issue".

It is expected that the commission, led by Sir John Vickers, will call for ring-fencing banks' retail operations from their investment arms.

Chancellor George Osborne has indicated that he is likely to accept the ICB proposals, while Cable has long called for evidence that ring-fencing will work as well as full separation of banks' activities.

The business secretary said it would be "disingenuous in the extreme" for the banks to warn that such reforms could damage the economic recovery.

In an interview with the Times newspaper, Cable said he did not expect a repeat of the banking crisis that followed the collapse of Lehman Brothers in 2008, but did admit he feared a general slowing down in Western economies.

He said: "Banks are in a way trying to create a panic around something which they know has got to happen.

"The governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem.

"We can't have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer; this can't go on and it has got to be dealt with."

Any recommendations set out in the Vickers report will require legislation to implement and would not come into force immediately. However, the business secretary insisted action could not be delayed.

The Confederation of British Industry (CBI) said it was not opposed to reform but questioned the timing and detail of the Vickers' approach.

Speaking to Radio 4's Today programme, CBI director general John Cridland said: "Business is not yet persuaded that these particular proposals are cost effective.

"If they are implemented at a moment of significant peril for growth in the British economy, they could have unintended consequences in the short term."

Appearing on the same programme, Lib Dem MP John Thurso said that banking reform was "absolutely central" to a sustainable economic recovery and that the Lib Dems were "absolutely right to keep pushing to make sure it doesn't go away"

Thurso, who sits on the Commons Treasury select committee said: "Vince is really expressing the intense frustration that is felt by a vast number of MPs, not simply the Liberal Democrats but other parties as well, that through the summer they have met a great many businesses and, indeed, in my case I've met a great many regional bankers who are all actually saying the same thing.

"The businesses are saying, 'we can't get the money on terms that are anything like affordable' and the regional bankers are saying, 'our head office are making us turn down deals that we think are good and would help and we would like to do'."

The prime minister said no decisions should be made until the publication of the report next week.

"Let's wait and see what that report says before we respond," David Cameron said.

He added: "I think the key thing we want from banks is lending into the economy so we can support growth and jobs, and we need to make sure we are not taking risks that put jobs at risk."