Tennant calls for wholesale and retail banks to be kept together

Published on Thursday 29 October 2009 20:24

MARK Tennant, chairman of trade body Scottish Financial Enterprise (SFE), last night called for retail and wholesale banks not to be separated in the expected reforms of the banking industry.

Tennant's assertion puts him at odds with Mervyn King, Governor of the Bank of England, who in a speech in Edinburgh last week called for the break up of the banks, a demand subsequently rebuffed by Prime Minister Gordon Brown.

SFE's chairman said pulling apart the retail and wholesale operations would force up the cost of borrowing and still lumber taxpayers with the risk if wholesale banks were to fail.

Instead, Tennant urged banks to carry more capital to weigh against risky assets and to heed the public's outrage over bonus payments.

His comments came as SFE named the winners of its "Innovators" awards, which reward new products, services and practices within the Scottish financial services sector.

Scottish Life – the specialist pensions division of Royal London – walked off with the top prize for its "income release" product, which gives customers access to their pensions before they retire. The firm also won the "innovation in customer service" award.

Other winners at the awards – for which The Scotsman is the media partner – included Scottish Investment Operations for a new diploma in investment accounting, Six Telekurs for FundFast, a "fund of funds" value calculation tool, Royal Bank of Scotland for its MoneySense financial education programme, and Origo Services for its "options pension transfer service".

Tennant told the audience at last night's awards: "There are many influential voices who would like to restructure the banking industry along the lines Professor John Kay has suggested, separating retail-deposit taking from wholesale banking – a latter-day Glass Steagal.

"This would be disastrous for the regeneration of the economy because, by definition, it would make capital more expensive not less and it would still leave a wholesale banking sector, which, in the end, if it went under would still have to be supported by the taxpayer.

"This does not mean to say that we do not need to change. Of course we do. We need to carry more capital against risky assets. We need to price risk better and we need to pay heed to the electorate's view on remuneration.

"Most importantly, these changes need to be on a global and not a national basis."

Scottish Life's triumph in this year's awards breaks a run of victories for Aegon, which scooped the top prize in 2008 and 2007. RBS had carried off the top prize in 2006.

Owen Kelly, SFE's chief executive, said: "We had an impressive range of innovations this year, but Scottish Life came through because the company reacted to a change in legislation that allowed them to create a new pensions option for a much wider range of people.

"It opened up a route that had, until now, been restricted to a very limited group. At a time of increased focus on the importance of pension provision, this innovation really is focused on customers."

Tom McGrath, managing partner of sponsor Ernst & Young's financial services business in Europe, Middle East, India and Africa, added: "Over the past 18 months, the economic and regulatory landscapes have evolved dramatically and, as the UK pulls back from recession, there can be little doubt that we are entering a new and changing world.

"To thrive in this environment, more than ever before, business leaders in the financial services industry will need to demonstrate ingenuity, flexibility and the courage to make tough decisions."

In his keynote speech, Tennant also renewed his calls for an end to "bank-bashing" and for the focus to shift to reforming the system.

He said: "Let's stop bashing banks and bankers.

"Banks are central to the economy. They have been since Venetian days and the time of Mionte Pasci Di Sienna. We need banks. Companies need banks. People need banks.

"Terrible mistakes have indeed been made but let's now try to rebuild our banking sector and to stop kicking it when it is down."

The SFE chairman also launched an attack on recent press comments about Edinburgh being "holed below the waterline" due to the damage done by the banking crisis.

He said: "It is true we have very serious problems in the banking sector but the industry here is far wider than the banks. We have three extremely successful life companies of global scale who are all thriving.

"The fund management sector is thriving and highly successful. Our asset servicing industry, a much newer industry, contains all the leading global names who have found the culture and pool of talent conducive enough to become major employers up here."

Tennant said Scotland was competing with Luxembourg and Dublin, the acknowledged leaders in asset servicing.

He also praised the support infrastructure surrounding the financial services sector – such as accountants, lawyers and information technology specialists – and wealth managers.

"With this sort of line-up, how on earth can we be holed beneath the waterline?" Tennant asked.

He also paid tribute to his predecessor, John Campbell, who he said had moulded SFE to fit in to the devolution settlement and lobby the Scottish Government in addition to the administrations in Westminster and Brussels.

AND THE WINNERS ARE…

&#149 The Scotsman award for innovation in education and skills: Scottish Investment Operations for its diploma in investment accounting

&#149 The Accenture award for innovation in customer focus: Scottish Life for its income release product

&#149 The Assiso award for innovation in business improvement: Origo Services for its "Options" pension transfer service

&#149 The Scottish Enterprise Award for innovation in new products: Six Telekurs for its "Funds Fast" scheme, which gives customers same-day valuation of their "fund of funds"

&#149 The SFE and E&Y award for innovation in investment in the community: Royal Bank of Scotland for its "Money Sense" schools programme

&#149 Overall winner: Scottish Life