Banks need root-and-branch reform, says Labour's Ed Balls

 

Ed Balls: "The government is dragging its feet"

Labour has demanded that top High Street banks should be forced to sell off hundreds of branches in a "root-and-branch" reform of the industry.

Shadow chancellor Ed Balls told the BBC that the government was "foot-dragging" on the issue.

Labour is proposing that the sold-off branches should be used to create "challenger" banks, to increase lending and competition within the sector.

But the government said it was already working to reform finance.

The coalition says it is committed to creating challenger banks, to compete with the "big five" of Barclays, Lloyds, HSBC, RBS and Santander.

Labour believes there should be a minimum of two challengers in place by 2015, meaning more than 1,000 branches would need to be sold off by the existing large banks to create seven sizeable lenders in the UK.

'Throttling'

The government replied that it was already facilitating the creation of two challenger banks, in the shape of Co-operative Bank and Virgin Money, with a source telling the BBC: "Labour is simply demanding what we've already done."

The Mail on Sunday suggests that, in a speech on Monday, Labour leader Ed Miliband will say the "big five" of Barclays, HSBC, Lloyds, RBS and HBOS should divest of hundreds branches to enable the privately run challenger banks to emerge.

Mr Balls said: "The government and [Business Secretary] Vince Cable are foot-dragging on the floor."

Vince Cable: "...sorting out the banking crisis - that's top of my priorities"

But Mr Cable told the Andrew Marr Show the government was already acting to reform banking, adding: "I want to see more competition. It's a good idea and it's happening... we are creating a more competitive banking system."

He accused some of the existing banks of not providing enough lending to businesses but concentrating on "short-term trade profits and not focusing on the long-term".

"It's throttling British industry," he added.

An investigation by US and UK regulators into the rigging of inter-bank lending rates has resulted in a record fine for Barclays, with the Serious Fraud Office confirming it has formally launched an investigation.

'Tardy'

Mr Balls said this should result in criminal proceedings, telling BBC One's Andrew Marr Show: "The reason why people are so angry is they think when people avoid their taxes or cheat on benefits they get sentences in jail.

"But when bankers do massive multi-million or billion pound frauds, there aren't criminal prosecutions.

"And the government should have acted - and I think the Fraud Office has been very, very tardy on this."

But a government source said "Labour left us a system where there were no criminal sanctions through the regulatory system. We are changing that."

Mr Cable also said the Royal Bank of Scotland, which is mostly owned by UK taxpayers, must co-operate with Canadian authorities investigating the interest-rate fixing scandal.

RBS has been accused of failing to hand over documents which could contain evidence of wrong-doing, but it insists it is co-operating.

The Barclays scandal has led to a political row between Labour and the coalition about how a subsequent inquiry should be handled.

Labour voted against the creation of a parliamentary committee to investigate the scandal after its bid to launch a judge-led inquiry was rejected by 320 votes to 239, a government majority of 81.

The Commons backed a parliamentary inquiry, carried out by a specially created committee of MPs and peers, by 330 votes to 226, a majority of 104.

 

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  • rate this
    +45

    Comment number 640.

    A stupid idea and not even relevant. The problems are all with the investment arms of the big banks so breaking up their bread and butter High St business won't help and will hardly encourage them to go back to what banks should be doing. A typical politician's fallacy- something must be done, this is something, so this must be done.

  • rate this
    +11

    Comment number 580.

    I am sure the banks will be more than happy to sell their costly high street banks, as increasingly customers are moving to online banking, and rarely if ever need to visit the high street branch.

  • rate this
    +12

    Comment number 540.

    What is really required is two banking sectors, separated from the high risk derivatives market that will collapse our whole financial system sometime soon.

    Bank 1 for the business sector where investors can bond loans to businesses.
    Bank 2 for society in general where a bank account is needed for wages and general transactions.

    ALL other banks are then separated from Sovereignty (TAXPAYER).

  • rate this
    +34

    Comment number 246.

    I am sick of seeing people bang on about how banks are "starving companies of credit" and "refusing to lend". So you'd like banks to lend to businesses that can't afford the repayments? Sounds exactly like the way we got into this mess. Also, the FSA's increasing capital requirements mean that banks have to either raise more capital (impossible in the market) or cut back on lending instead.

  • rate this
    +95

    Comment number 207.

    What needs to be installed is greater real time moderation of banking behaviour. We need banks, but unfortunately human nature is essentially greedy, and without adequate regulation, banking will always veer towards self service rather than supplying a service. To reinstall public confidence in the banking system, banks need to go back to supplying a service, rather than serving themselves.

 

Comments 5 of 9

 

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