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Last updated at 15:37 BST, Monday, 12 September 2011

UK Banks face major changes

Summary

12 September 2011

A commission appointed by the British government has recommended major reforms of the country's banks.

Reporter:
Robert Peston

Canary Warf in Docklands, east London

Britain's banks face biggest shake up in years

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The most radical reform of British banks in at least a generation has been proposed by the independent commission on banking set up by the Treasury.

What's recommended is as close to a formal break-up of Britain's biggest banks as it's possible to get without obliging the likes of Barclays and Royal Bank of Scotland to physically separate their retail and investment banking operations.

All of Britain's leading banks would have to put retail banking, which provides vital services to individuals and businesses, behind a new ring fence or firewall.

The retail operations of Barclays and Royal Bank of Scotland, for example, would have their own boards, they would have to raise additional capital as a protection against losses and they could have very few financial links with the investment banks also owned by Barclays and Royal Bank of Scotland.

Up to two trillion pounds of loans and investments would end up behind these ring fences and the big idea is to reduce the danger that there may once again be huge costs for taxpayers as and when there's a banking crisis on the scale of the crash of 2008.

The biggest structural changes would be faced by Barclays and RBS, which are likely to warn that costs will be increased for themselves and for their customers.

The commission, however, believes that the reduction of risks for taxpayers means that there would be a clear net economic gain.

Robert Peston, BBC News

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Vocabulary

radical reform of

important change in the regulations designed to improve

the Treasury

the British government department responsible for the economy and finance

obliging

requiring

investment banking

the business of banks which try to sell and buy shares and other companies

retail banking

The business of banks which deal with customers and their savings and loans

ring fence

protected area where budgets are secured

firewall

in this example, another word for protected area where budgets are secured

boards

groups of people who control a company

capital

money and possessions ready to be spent of invested

structural changes

changes to the way things are organised and arranged

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