Global regulators are putting the banks through a boot camp to knock them into shape. Banks probably feel they have been on a crash diet and a strict fitness regime since the crisis. But few outsiders would have much sympathy. The global crisis left the public feeling that the banking sector was bloated, overpaid and in poor shape to perform its key function of supplying credit to the real economy. This week, the Archbishop of Canterbury has thrown his moral authority behind the calls for tougher regulation, in particular a financial transaction tax.
The reforms developed after the crisis were right at the time, but the market realities of the past three years have undone their effectiveness and restricted banks’ ability to supply credit to the real economy.
We are now heading down a route of financial reform focused primarily on resilient capital and liquidity – without adequate consideration of economic growth. Some think regulators should hold their nerve and drive these reforms through, but the risks of weaker lending growth are already crystallising.