New rules on capital and liquidity are set to improve the stability of the financial system but will add billions to the fixed operating cost of a bank and inevitably increase the cost of credit, said the British Banker’s Association (BBA).
Angela Knight, chief executive at the BBA, said the move would spell the end of the “cheap money era” as it becomes more expensive to run a bank, which will in turn be passed on to consumers through higher borrowing costs for loans and mortgages.
Knight has also warned that whilst banking capital rules may seem appropriate, some banks are likely to be more affected than others, and that “regulators will need to look at the situation carefully” before implementing the changes.
The deal was thrashed out in Basel on Sunday afternoon, where central bankers and regulators from 27 different countries signed up.
The new rules are expected to have a major impact on a range of economic issues from the higher cost of overdrafts to businesses, through to impediments on the wholesale market.
Despite this, Knight has stressed the importance of making changes in the European banking system, to help improve the standing of the industry in the process.
She said: “In the UK we are of the view that a bank should be allowed to fail, but the manner in which that failure is managed and controlled is where more work needs to be undertaken.”
She added: “Improving the industry’s reputation is as much a part of the future as making the practical changes to our capital ratio.”
