Osborne hails bank reform giving savers more protection

Chancellor George Osborne Mr Osborne defended the government's spending cuts

Related Stories

Chancellor George Osborne has said that "taxpayers will be better protected when things go wrong" thanks to banking reforms outlined by the government.

Earlier, Financial Secretary Mark Hoban unveiled the banking reform White Paper, following recommendations by the Independent Commission on Banking.

He said retail banks would be ring-fenced from riskier investment banking.

But Sir John Vickers, chair of the ICB, said the coalition should have done more, forcing banks to hold more cash.

"The White Paper proposals are far-reaching, but on some points - such as limits on the leverage of big banks - we believe they should go further," Sir John said.

"We welcome that the ICB proposals have been accepted in large part, but urge the government to resist pressure to weaken their effectiveness."

'Wider range'

Start Quote

It is not utterly impossible that the UK and its huge banks could seem a bigger financial risk than the eurozone”

End Quote

In his annual Mansion House speech, Mr Osborne acknowledged that risk taking in the City of London had "spilled onto our High Streets, putting taxpayers' money at risk".

"I believe that we have found a workable way to solve what I called the 'British dilemma' - protecting British taxpayers in a way that does not make the UK uncompetitive as a home of global banks."

Mr Osborne also defended the government's spending cuts, which have come in for increasing criticism given the UK's return to recession. He said growth had been hit by the eurozone debt crisis and high commodity prices.

Earlier on Monday, Mr Hoban told the House of Commons that the government would "ring-fence retail deposits from the risks posed by international wholesale and investment banking.

"A ring-fenced bank will be economically and legally separate from the rest of the group and run by an independent board."

However, the government is making an important concession to banks, who were angered at the ring-fencing proposals.

Start Quote

It won't make our banks crisis-proof”

End Quote Steve Davies PricewaterhouseCoopers

It is looking at broadening the range of activities allowed within ring-fenced operations to include certain hedging tools, for instance to protect against interest rate and currency fluctuations, where these are sold alongside loans to small business clients.

Banks have been accused of mis-selling exactly such products to small businesses in the past.

"We felt that it was in the interests of business to ensure there was a wider range of instruments included in the ring-fence, including derivatives," Mr Hoban said.

"These products are widely used. There is a need for them."

The British Bankers' Association had warned that the original reform proposals could hurt the banking sector, and have a knock-on effect on the overall economy.

Labour's Ed Balls said there were still questions to answer, and accused the government of watering down the ICB's proposals.

"Why is the chancellor not making the statement? Or should I say the 'part-time' chancellor? What is the chancellor running scared of?" Mr Balls said.

"Isn't the truth that having failed to deliver international agreement on tougher international banking standards, the chancellor is now being forced to water down and fudge the Vickers' reforms?"

Higher costs

Steve Davies, lead partner of retail banking at the business services firm PricewaterhouseCoopers, told the BBC that the reforms would not prevent another banking crisis.

"It won't make our banks crisis-proof. What this does is to enable a failed bank to be properly recovered in the event of a crisis.

"It does not prevent a credit crunch and it does not stop a run on the bank."

He added that the reforms were likely to push up the cost of banking: "The cost of implementing the regulation is going to be substantial and the regulations are likely to force the banks to hold more capital back and those costs will have to be passed on."

The banking reform plans will remain open for consultation until draft legislation is set out in the autumn.

Plans for the final legislation are expected to be in place by 2015.


More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 73.

    Reform of the banking system is needed, but it must be done in a way that doesn't limit the number of financial products available to customers.

  • rate this

    Comment number 54.

    Banking regulation depends on risk. Profit is the positive outcome of risk. We allow people to make profit because they have risked failure and come good.

    An institution, therefore, that cannot be allowed to fail should not be able to generate a profit as they should not be allowed to take a risk.

    The real question is whether banking should be in private hands at all.

  • rate this

    Comment number 17.

    We can stop UK banks from gambling with UK investors money while allowing them to use their own profits or Foreign retail business to boost their credit to gamble with.
    We can do that without damaging business in the city.
    Our banks will make less money and would not be able to justify the high pay they award at the moment but I could live with that.

  • rate this

    Comment number 11.

    The banks can't and won't be reined in. They have every one of us over a barrel, and they know it. They can't lose, we can't win

    Any time money moves from A-B the banks take their cut. You can't even get your wages these days without them going through the bank


More Business stories



BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.