Moulton hits out at ‘gutless’ delay over banking reforms

Private equity heavyweight Jon Moulton also argues that the costs of introducing the Independent Commission on Banking’s (ICB) ring-fencing proposals are a “bargain” compared to the huge financial hole left in the UK economy by the 2008 financial crisis.

Moulton, who is perhaps best known for his high-profile attempt to rescue MG Rover in 2000, told The Scotsman at an event in Edinburgh that policymakers were taking a “serious risk” by delaying much-needed reforms, which are designed to protect consumer and commercial deposits from the banks’ “casino” investment banking operations. He is expected to repeat his scathing attack today at a major conference in Westminster, which will be attended by some of the Square Mile’s most powerful bankers.

Moulton said it was cowardly to delay the implementation of the ICB’s reforms by eight years and that the estimated £7 billion-a-year cost was a small price for the banks to pay compared to how much damage was caused by the credit crunch and subsequent banking crisis.

“The UK economy is about £140bn smaller than it would have been if we hadn’t had the banking crisis in 2008,” he said. “The costs according to the banking commission are of the order of £40bn… it’s a bargain to sort the banks out.”

Contrary to claims by the banks themselves that the system is currently too weak to shoulder the costs and upheaval triggered by the reforms, Moulton argued that it was riskier leaving the UK financial system exposed to another crisis.

As credit rating agency Moody’s slashed its recommendation on two French banks yesterday and a Greek default draws ever nearer, Moulton attacked policymakers for not making essential changes to the banking system much earlier in order to protect Britain against a repeat of the events of 2007-9.

“The proposals could have been out two years ago,” he said. “To make it wait a few years is actually taking a serious risk because between now and 2019 there might be the mother and father of other crises and even more damage done to the economy.”

Moulton is delivering today’s keynote speech at the Loan Market Association conference at the Queen Elizabeth II Conference Centre in Westminster.

Although he broadly backs the measures announced by the ICB earlier this week, he said the real problem lay in the reform deadline, which has been kicked well back into the later part of this decade. “I think they [the ring-fences] are in roughly the right direction, but their pace does remind you rather of the Bloody Sunday approach to politics,” Moulton said.

The founder of several private equity vehicles – including Better Capital and Alchemy Partners – Moulton has built a reputation in the City for his outspoken views.

His assault on the government comes after Barclays boss Bob Diamond gave a surprisingly supportive response to the final ICB report despite warnings by analysts that his organisation, and Royal Bank of Scotland, stood to be the biggest losers from the reforms.

As the first of the UK banking bosses to respond, Diamond called the recommendations “a welcome step towards the greater clarity that banks need to be able to operate with confidence”. Speaking at a conference in New York, Diamond admitted that ring-fencing had not been his “first choice” but he added that Barclays “can make it work”.