By Ainsley Thomson LONDON--Royal Bank of Scotland Group PLC (RBS, RBS.LN) Chief Executive Stephen Hester said Tuesday the U.K. has adopted one of the most aggressive regulatory frameworks in the world, which risks making the country unappealing to the international banking industry. Speaking at the Investment Property Forum conference in London, Mr. Hester said policy makers had to wrestle with the conundrum that meant the steps they are taking to correct the problems that led to the credit crisis are, at the same time, making Britain unattractive to bankers. He said the regulations were depressing the price of banks' shares and were encouraging banks to withdraw the supply of credit to households and firms. "The U.K. has probably been the most aggressive of all regulatory and political environments," Mr. Hester said. "It's a contradiction because none of us can disagree the U.K. became overextended in the banking industry, and these are measures that need to be taken. But the guide path, the one which they [regulators] have taken, is very sensitive, and it creates these contradictions." Mr. Hester's comments come just days before Chancellor of the Exchequer George Osborne outlines one of the most radical regulatory overhauls the U.K.'s banking sector has faced. Mr. Osborne is expected to give more detail on how retail depositors and small businesses would be "ring-fenced" from other, riskier banking activities. This is expected to include plans to compensate customers ahead of bondholders in the event of a bank failure. -Max Colchester contributed to this article. Write to Ainsley Thomson at ainsley.thomson@dowjones.com.
