Standard Chartered yesterday broke ranks with its banking rivals by publishing a withering broadside against the Independent Commission on Banking's proposals for reform.
In its submission to the ICB the bank argued that the commission's proposals increased the chances of banks failing, left the taxpayer at greater risk from the financial sector and would weigh heavily on the economy.
The bank, which focuses on emerging markets and has no UK high street presence, is the first to reveal its response to the ICB's interim report after the deadline for submissions passed on 4 July. The ICB is aiming to publish the rest by the end of this week.
The interim report, published in April, stopped short of advocating breaking up Britain's banks but called for the separation of retail and investment banking to lessen the risk to economically vital functions and reduce what it insisted was an implicit taxpayer subsidy.
Standard Chartered said in its submission: "When we look at the ICB proposals with the context of everything that has happened or is in prospect, we are deeply concerned. Whilst the package of reforms may have some benefits in reducing the potential impact of future crises, they may actually increase the probability of bank failures and will certainly impose a significant cost on the UK economy." Key points in the document include:
* Ring-fencing retail banking could imply that retail-focused banks are wholly backed by the taxpayer, potentially encouraging risky lending;
* The ICB's £10bn-plus figure for taxpayers' subsidy of UK banks is wrong and is based on skimpy analysis;
n The UK should copy Asia and intervene with measures such as loan-to-value and income-multiple caps to stop markets getting out of hand;
* Making banks boost their capital reserves will deter investors from providing capital and force banks to reduce lending;
* The proposals risk forcing up the cost of credit for UK firms and weakening London as a financial centre.
The bank's views will be taken seriously by the Government and its regulators because Standard Chartered withstood the crisis better than its rivals and provided the blueprint for the 2008 banking bailout.
The bank, which has threatened to quit the UK if regulation becomes too heavy, said: "It could be argued that the impact [of the ICB's proposals] is beneficial [to us] since implementation of the recommendations would distract and damage key competitors. However, we could be negatively affected by second-order or indirect consequences, such as a diminished role for London as a leading international financial centre."
Andrew Tyrie, chairman of the Treasury Select Committee, has repeatedly called for the banks to release their proposals to the ICB to allow a public debate before its final report on 12 September. Britain's other banks are waiting for the ICB to unveil more than 150 responses to its proposals in the next few days.
Standard Chartered rejected HSBC's proposal that ring fencing should be along accounting lines, and Barclays' call for "operational subsidiarisation", which provides for key functions to be split off when a bank fails but no prior division along business lines.
Instead it called for a narrow definition of retail banking within the ring fence to minimise costs and allow funds to be moved between banks' operations.