Banking ring-fence is 'very robust' - Treasury

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Treasury spokesman Lord Newby has defended the government's proposals for reform of the banking industry as "very robust".

He was repeating a statement given earlier in the Commons by Financial Secretary to the Treasury Greg Clark on 4 February 2013.

Britain's biggest banks will face complete separation if they do not follow new rules ring-fencing risky operations from savers' deposits, under the new Banking Reform Bill.

The legislation allows the government and a new banking watchdog powers to "electrify the ring-fence" if banks fail to split high street branch operations from the dealing floor.

But shadow Treasury spokesman Lord Davies of Oldham criticised the government's decision not to introduce "full reserve powers", permitting total separation of all banks.

Lord Davies claimed "the government would like to water things down" and the measures represented "only a partial climbdown".

Lib Dem peer and former investment banker Baroness Kramer urged the government to "look seriously at splitting up some of the major banks", before former Chief Secretary to the Treasury Lord Higgins asked: "If the system really is effective, how will the position of a bank operating under it be any different from having a split between the two sides of the bank?"

Lord Newby responded that the government's plans brought the industry "one step towards the greater competition that she [Baroness Kramer] seeks."

He told Lord Higgins: "The aim of the electrified ring-fence is to set up a very robust system. Secondly, the electrification not only allows the bank that has transgressed to be dealt with but will act as a very severe deterrent to prevent banks transgressing in the first place."

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