Red tape strikes fear into the banks

RAMPANT red tape is threatening to bring an end to the boom in the British banking industry, a report warns. Over-regulation is seen as a greater risk than terrorist threats, hedge funds, fraud and currency fluctuations, according to a survey published today.

The news comes as the UK's biggest banks prepare to unveil record profits. Royal Bank of Scotland's chief executive Sir Fred Goodwin is expected to kick off the bonanza on Thursday, posting a 12% rise in earnings to £8bn.

Research from the Centre for the Study of Financial Innovation think-tank found that red tape from UK and European authorities has shot to the top of the list of potential 'banana skins' for banks.

CSFI director Andrew Hilton said: 'The remorseless rise in regulation dominates the concerns of virtually all respondents - with the unsurprising exception of the regulators themselves.

'There is a feeling that a regulatory tide is sweeping all before it and that it could well drown some of the industry's smaller players. The cost is enormous. It jacks up the price of even the simplest products, it deters innovation, it undermines the principle that investors should take responsibility for their own actions, and it makes it harder for new entrants to join the market. It also induces a false sense of security that nothing can go wrong.'

The 440 banks surveyed also cited corporate governance as a concern amid the clampdowns on directors' pay and share dealings. By contrast, derivatives - which were the biggest concern to banks last time around - have dropped to fourth in the list of worries.

With the dollar's recent movements still volatile, currencies have also climbed up the leaderboard.

Bradford & Bingley and Alliance & Leicester will join RBS in publishing their results this week while Britain's biggest bank HSBC will take its turn next week.