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Warnings that banking reform could impact recovery

May 4, 2010

A leaked PwC report highlights concerns that government plans to reform the UK banking system may lead to a double-dip recession.

The report suggests that the introduction of new banking rules governing capital adequacy and banking liquidity could in fact reduce liquidity in the market place.  PwC estimates that the measures could reduce economic growth by 2%, despite forecasts for GDP increases of 1% in 2010 and 2% in 2011, pushing the economy back into recession.

It seems that the report was commissioned by major UK banks including Barclays, HSBC and the Royal Bank of Scotland.  It has yet to be completed, but according to Sky News was intended to be circulated in Whitehall after the election.

When questioned about the report last week, Gordon Brown was adamant that reform had to take place.  “Businesses are telling me every day that they need a better deal from the banks and the recapitalisation of the banks and a proper system of remuneration … is absolutely crucial to the future of British industry.”  He said that countries were working together to make sure that banking reforms had international agreement, adding:  “We are taking the right decisions and the messages to the banks is they will have to pay back every single penny they have received from the government.”

Liberal Democrat shadow chancellor Vince Cable was also quick to dismiss bankers’ warnings, arguing: “Given the scale of the bailout the financial sector has received from the taxpayer, this kind of scaremongering from the City is simply whingeing.”

This blog was written by Naomi Honey

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