RBS boss urges caution on banking reform

RBS chief executive Stephen Hester has urged caution on reform of the banking system as the Independent Commission on Banking launches its review of the sector.

Mr Hester agreed banking reform was needed but stressed it was important the Commission took into account changes already in the pipeline as a result of international discussions.

The ICB, led by Sir John Vickers, today set out the areas it would be investigating including the possible separation of bank’s retail and investment operations.

Speaking to TheBusinessDesk.com, Mr Hester pointed to the recent Basel agreement that will impose new capital requirements on banks as an example of the global reforms underway.

He said: “It does seem to me that important reform is needed in the banking area globally, not perhaps as much as some politicians would like because there certainly has been a certain amount of scapegoating, but even when we remove the scapegoating angle change is needed.”

Asked about the suggestion that banks may move overseas if they disagree with the commission’s recommendations, he said: “We must make sure banking is reformed in ways that would make the last crisis impossible or very difficult to occur but at the same time we must understand that banking has a huge role to play in this economy making its way in the world and so we don’t want to throw out that particular baby out even when we are bailing out some water over the side.”

RBS was taken into public ownership at the height of the financial crisis in 2008. Mr Hester said the bank’s recovery plan was on track and suggested the first sale of shares could take place once the ICB had completed its work.

“It was always my hope that the Government could start selling our shares at a profit next year. I think the banking commission is likely to put that date back because it always going to be hard to sell the shares when there is a debate going on that could impact different banks but it seems to me as soon as that is out of the way it is in our interest and the Government’s interest for there to be an initial privatisation,” he said.

Earlier this week Business Secretary Vince Cable summed up the Government’s agenda on banking as “make them safe and make them lend”, echoing concerns expressed by business that banks remain reluctant to grant loans in the wake of the financial crisis.

But Mr Hester insisted that RBS was granting 85% of loans to business. “I think it is our job to provide finance to (customers) provided it is responsible to do that. Somebody has to make that judgement and the person you turn down never thinks you are making that judgement correctly,” he said.

“And one of the judgements we have to make, which in difficult times is more difficult and more stressful, is when is a loan responsible and the correct way to support a company and when is it encouraging them to continue with a business strategy that is flawed.

“We have the money, we have the capital and the willingness to lend and our only constraint is we don’t want to lend to people who can’t pay us back because it doesn’t help them or us.”

The party conference season has already produced a renewed spate of attacks on the banking industry but Mr Hester said politicians recognised financial services were an important part of the country’s economic future.

He said: “I think that what we have to do is deal with reality. We have to go through a process of reconnecting with our customers, serve them well and make other reforms I have talked about and I believe that if we do that over time people will recognise the important role we play in society, the important role we play in the ability of the UK to make its way in the world and the other things will ebb.

“If the cuts are going to be successful the private sector has got to expand and so you have to look around at what the things Britain is naturally good at and financial services is one of them.”

RBS recently announced it was reorganising its business centres with the expected loss of 3,500 jobs. Mr Hester refused to rule out further losses but insisted no further announcements were expected at this stage.