Osborne confirms banks must ringfence retail banking

 

George Osborne: "The elements vital for families, businesses and the whole economy will be able to continue without resort to the taxpayer"

Chancellor George Osborne has backed most of the recommendations in the Vickers' banking report, including protecting retail banking from riskier investment activities.

Mr Osborne also backed the suggestion from the Independent Commission on Banking, which said that banks should keep back a bigger cushion of assets.

The changes are designed to avoid a repeat of the 2008 banking crisis.

He also said state-owned RBS would reduce the size of its investment bank.

The reforms to the banking sector mean the deposits and overdrafts of ordinary consumers and small businesses will be handled only by ring-fenced parts of banks, which will not be allowed to embark on risky investment activities.

Mr Osborne said: "Our objective is clear. We want to separate high street banking from investment banking, to protect the British economy, protect British taxpayers and make sure that nothing is too big too fail.

"Second, we will make sure the banks have bigger cushions so they are better able to withstand losses."

The Shadow Chancellor, Ed Balls, broadly welcomed the moves: "We on this side of the House are determined our part in implementing these proposals, as far as possible, in a cross-party spirit. Taxpayers, customers and businesses, angry at banking recklessness which forced a multi-billion pounds bailout, will expect nothing else."

Mr Osborne said the changes would cost the industry £3.5bn to £8bn a year, but he said the costs would be "far outweighed" by the benefit to the economy of avoiding future financial crises.

He said these could reach £9.5bn a year on "modest" assumptions.

Smaller RBS

The Chancellor also announced a major strategy change at Royal Bank of Scotland (RBS), namely a big reduction in the size and scope of its investment bank.

A Treasury source told the BBC that the reconstruction of RBS's investment bank would leave it close to the kind of investment bank once owned by NatWest, one more focused on UK companies.

RBS bought NatWest a decade ago.

Mr Osborne told MPs in the House of Commons that he supported plans by RBS to shrink its investment bank into a business more focused on UK companies.

This is expected to involve a significant retreat from North America, where the bank acquired a big presence when Sir Fred Goodwin was chief executive.

Ringfence

However, BBC business editor Robert Peston said that the reforms implemented by the government are not 100% as originally billed.

In one key area the banking industry has succeeded in getting the Treasury to water down one of Vickers' recommendations, he said.

This is the proposal that the biggest UK banks should have enough capital, plus loans that could be converted into capital, to cope with losses equal to one-fifth of the size of their total balance sheet.

Robert Peston reported that HSBC had successfully argued that it would be disproportionately expensive for it to do this. In HSBC's case they are much bigger outside the UK than inside.

The Treasury is expected to soften the blow by requiring the big banks to raise capital to support only that part of their balance sheet that British tax payers would have to support in a crisis.

However, our correspondent said Sir John Vickers and his commissioners had been successful in achieving most of their aims, and the UK's financial system would be overhauled.

"Our banks will in the coming five years be forced to undergo significant financial, cultural and managerial reconstruction," he said.

Future crisis

Lydia Prieg, finance researcher at the New Economics Foundation, said the reforms would not protect the taxpayer from any future banking crisis.

"Even an outright separation between retail and investment banking, which is not what we are getting, would leave individual banks with asset ratios equal to approximately 100% of the UK's GDP, ie that are too big to fail.

"Critics will say these reforms already come at too high a price, but even the government's upper estimate £8bn is a drop in the ocean compared to the cost of another banking bailout and still means we subsidise banks by approximately £40bn a year [as a result of their too-big-to-fail status]."

John Longworth, director general of the British Chambers of Commerce (BCC), said the reforms in themselves would not help the wider problem of businesses gaining access to bank lending.

"Businesses still find it difficult to get access to capital, or capital on reasonable terms, in what is a highly risk-averse environment.

"This creates the danger of slowing the recovery and it is possible that Vickers' recommendations could add to this problem.

"Given the timescales for the implementation of credit easing, the time may now have come for the government to consider the introduction of an SME bank."

 

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  • rate this
    -2

    Comment number 775.

    Darren Shepperd 647

    The budget deficit is a fact. The content of any conversation is between Cameron & Clegg is subject to interpretation and thus an opinion. Your posting is pure spin the deficit is black & white.

    Lefties never are very good at Maths especially middle class Tarquin &
    Guinevere in their protest village. Very good at spending other people's money though mummy & daddy's or taxes.

  • rate this
    +5

    Comment number 774.

    772. Yes it was funny, I laughed myself until I remembered those who starved to death and remember the army of homeless being created in 'Rich' USA. And our own young who cant get a job or a house. Sure you need a sense of humour today but my joy will come when these theiving tax havens are ended.

  • rate this
    +4

    Comment number 773.

    Today I received a letter from RBS who my business account is with, they notified me about the final sale of 318 RBS banks in England and all Natwest banks in Scotland to Santander. The deal worth £1.65bn seems pretty cheap to me considering how much money the taxpayer has invested.
    Santander now overtakes HSBC as one of the biggest UK banks.

    Is a Spanish bank the right move?

  • rate this
    0

    Comment number 772.

    754.Norman Brooke

    "...Watching one form of madness on TV today where they forceably weep themselves over a despotic dictator..."

    ===

    Am I alone in finding this one of the most hilarious spectacles with which humanity presents us? I was pleasantly surprised to find it every bit as funny as when the recently departed's father died.

  • rate this
    0

    Comment number 771.

    768.mervhob
    I agree and would go so far as to say most investment bankers have never had an honest day. Honesty does not equal maximum profits.
    Its time profits were removed as the single overriding modus operandi for the bankers and that they were rewarded for benefiting the country as a whole. After all its the countries money they gamble with not theirs. why should they benefit from our risks

  • rate this
    0

    Comment number 770.

    Our system is superior.....For a few.

    This is a case of the needs of the Few outweigh the needs of the Many. (Mr Spock)

  • rate this
    +2

    Comment number 769.

    DarrenS 749,760
    Dr.B.748

    Thank you for that.

    In my original post, I said that I could not believe that I was defending our banks.

    Could not understand how it happened with the triple A ratings.

    All is much clearer now.

    It will be interesting to see how any prosecutions go, although none here I expect.

  • rate this
    0

    Comment number 768.

    760 Darren Shepperd

    Wall Street has seldom had an honest day, if ever - read J. K. Galbraith's 'The Great Crash of 1929'. What we need is some old fashioned investment, in something the Markets have no understanding of - growth. Other than that which applies to their remuneration.

  • rate this
    +1

    Comment number 767.

    764 I agree Norman, so many people have this superior attitude in the UK when it isn't desrved. We should look at the way the Scandinavians in particular, also Germans & French manage their countries finances & try taking aleaf out of their book - these countries are the least effected by the global banking crash, have a far better education system to ours & the smallest gap between rich & poor.

  • rate this
    +1

    Comment number 766.

    763.mbco1975
    Funny you seam to ignore domestic mortgages and loans to SME as-well as personal loans.
    They won't need to play the stock market and thus will actually be encouraged to help people and SME unlike now where they see quicker returns with higher risks (to us not them) on stocks.
    Once again it shows how shallow the bankers cry of we have to be able to gamble your money really is

  • rate this
    +1

    Comment number 765.

    742.Tanglewood
    #687:....take out the reference to "greed" (which I read as highly subjective, same as those who describe the earnings of some as "obscene") .......I would add "short-termism" to your list...'

    I would view 'greed' as the principle of awarding themselves such bonuses but 'obscene' as the amount itself comparative to the average employee in the co.

    Re 'short-termism' - spot on.

  • rate this
    +9

    Comment number 764.

    What is appalling is listening to the tone of those who think our system is superior. In the 60s it was easy to get a job and a house, in the 80s it was hard to get a job but easy to get a house, Today its hard to get a job and a house. What has British style capitalism up its sleave for 20 years hence one shudders!

  • rate this
    +1

    Comment number 763.

    @ 741.Toby Chambers "We need LONDON PEOPLES BANK Run by the people for the people"

    And what will the annual charge be for a current account if the bank can't invest its deposits in anything?

    Pretty substantial I'd guess. How much would you be willing to pay for this service? £2 per transaction?

  • rate this
    -1

    Comment number 762.

    "155.Kingstheman
    No matter what he does, he will be accused of being 'the Chancellor of the Bankers' by the Left wing."

    That's because just as Labour is funded by the Unions, the Conservatives are heavily funded by the financial industry so they can lobby for themselves. No party funds itself and those funding it are out for themselves. Sorry to burst the bubble, It's the way things work.

  • rate this
    +4

    Comment number 761.

    Everyone is worried by problems for the City, which need resolving, but the Treaty proposals are hugely more important. I am a European and want to see integration, but I DO NOT want to be part of a corrupt and undemocratic Europe. Current arrangements leave civil servants of dubious quality sucking the life from Europe's citizens. Why is this allowed? Could it be because our own rulers are wrong?

  • rate this
    +3

    Comment number 760.

    738.zipperty
    If you want to start to get a better idea of how crokked wallstreet really is start with a quick google on Timberwolf transaction.
    The $1bn package of mortgages sold by Goldman in 2007 was tripple A rated even though GS knew it to be little more than toxic loans just 5 months later it was worth less than 20%.
    GS also bet that those same packages would default so won twice

  • rate this
    +1

    Comment number 759.

    Good - taking risks with finances which need to remain secure is professional suicide anyway, apart from the terrible problems it's caused for the whole country. It's a terrible pity for the UK that this didn't occur about a decade earlier so we didn't have to bail out the banks with tax payers money - much of which seems to have gone on massive bonuses & pensions for the likes of Fred Goodwin.

  • rate this
    +3

    Comment number 758.

    PNorth

    13 years prosperity is worth 7 (possibly more, looking at the state of the world) of austerity? i would prefer less fat on my goose, if it meant i didnt have to then fast until the next meal.

  • rate this
    0

    Comment number 757.

    This will only help the greedy bankers not the customer with no safeguards apart from the F.S.A. Will this help Small business employ more people? No This is a sick joke on the british bank customers who wont have any comeback on the way they are treated the useless banks will make mistakes and not take any blame . We are paying the banks an insurance to do they job ?is this legal ?

  • rate this
    0

    Comment number 756.

    741.Toby Chambers
    We need LONDON PEOPLES BANK

    Run by the people for the people

    ++ Yep, for those needing just a current account with no facility for temporary embarrassment. But for heaven's sake don't let politicians run it especally Messrs Cable & Osborne.

 

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