It is sensible to downsize the UK banking sector?
If you listen to the UK government and the UK regulators it appears as though they are determined to "downsize" the UK banking sector and take away much of the progression achieved over last few years. However, it is worth remembering that the UK financial sector is the central focus of the UK economy and London itself is one of the major financial markets of the world. Any significant changes to remuneration and any increase in the regulatory straitjacket would not be well received by leading companies in the sector.
The UK banking sector as a whole is one of the more creative and forward thinking industries in the world and ultimately does not fit well with a tight regulatory straitjacket. The former system of self-regulation, although criticised by many, was the perfect breeding ground for new and forward thinking financial instruments even if some companies succumbed to the excess risks they took on.
While there is obviously a need to find a balance between regulatory powers, investor protection and the forward thinking nature of the financial sector this will not be an easy process. If the regulators and the government get it wrong we could see many of the major financial companies in London move overseas where regulatory constraints may be less.
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