London, England, United Kingdom (AHN) – A study by PricewaterhouseCoopers warns British Chancellor George Osborne that Britain’s gross domestic product may shrink by two percent if stricter banking reforms would be put in place. The contraction is estimated to cost the British economy $1.5 trillion (1 trillion pounds).

Reforms Could Reduce Britain’s GDP By 2 Percent

Members of the British Bankers’ Association have sought an audience with Osborne to warn him of the consequences of requiring larger capital requirements, which would take place at about the same time the Bank of England stops liquidity measures to help financial institutions cope with the global economic crisis.

If the British central bank stops the liquidity programs, about $600 billion (400 billion pounds) would be withdrawn from the country’s banking system.

According to the Bank of England’s timetable, the liquidity schemes are scheduled to end in 2012.

The overall result of those measures would be to slow down economic recovery for Britain and prevent households and businesses from accessing loans and other forms of credits, the bankers warned.

Osborne, however, is intent on going ahead with the banking reforms, particularly collecting a bank levy. The Bank of England’s counter proposal to the British bankers is for the financial institutions to reduce bonuses to officers and cut dividends to shareholders to free $15 billion (10 billion pounds) which would support $75 billion (50 billion pounds) for lending.

Barclays Chief Executive John Varley issued a similar warning at the G20 Summit in Toronto, Canada last month. Varley said while banks are ready to apply the G20 reforms, wrong decisions could weaken the financial institutions and the global economy.