Chancellor warned of 'another banking crisis'


A Conservative MP and former fund manger has warned the chancellor of a second banking crisis unless the government properly separates high street banks from their investment arms.

Sir Peter Tapsell made the plea during Treasury questions on 24 June 2013.

The Father of the House, a title earned from being the longest-serving MP in the Commons, said the UK was heading for a "disaster" unless the banking system is reformed.

Chancellor George Osborne said a ring-fence was a "better way forward" to protect retail banking from riskier investment activity.

Sir Peter told Mr Osborne: "After a lifetime as a stock broker and fund manager, my instinct as bond yields rise all over the world is that we are heading for another banking crisis which will certainly choke off the already inadequate lending of banks to small businesses.

"My dismay is you have not yet committed yourself to the total separation of investment and commercial banks which I have been urging on you ever since you became chancellor.

"I am absolutely convinced if we do not go back to something approaching Glass-Steagall, it will be an absolute disaster when the next banking crisis hits us."

The American Glass-Steagall Act enforced legal separation on commercial and investment banks after the 1930's crash. The law was repealed in 1999.

The chancellor said a government-commissioned report by former Bank of England chief economist Sir John Vickers "came forward with proposals to ring fence retail banking as he thought (it) was a better approach".

The idea behind the ring fence is that the banks' investment banking and capital markets businesses could then safely be allowed to fail, without this also bringing down their high street banking businesses.

Mr Osborne added that the Parliamentary Commission on Banking supported a ring-fence and recommended giving the regulator the power to split up a bank that refused to comply with the ring-fence.

"I think that is the right way forward," he told MPs.