Treasury financial secretary Sajid Javid says future Governments may still be forced to bail out banks despite the biggest regulatory reforms in a generation being signed into law today.
The Banking Reform Act 2013 has been given Royal Assent and aims to make the UK banking system safer in the wake of the financial crisis.
Banks will be forced to ring-fence their retail arms from their investment divisions by 2019 in a major overhaul of UK banking.
Javid hailed the “major milestone” but warned it would not stop future Government’s intervening in a future crisis.
He told the FT: “I don’t think any minister can sit here and say that now, or in the future, the state can never have any future involvement in the resolution of a bank.
“All the Government can do is to learn the lessons of the past and make sure you create a system that is a lot more robust and a lot safer than what we had before. That is what I think this achieves.”
The Act imposes a tough new criminal sanction for reckless mismanagement of a bank. It also abolishes the approved persons regime for deposit-taking institutions to be replaced with a senior managers’ system.
In addition it will cap the overall cost of credit for payday loans and hand the FCA greater pre-enforcement powers over firms and individuals it suspects of misbehaving.
The Act was the brainchild of Sir John Vickers’ Independent Commission on Banking, set up in 2010, which reported in November 2011.
The final law also includes many recommendations of the parliamentary commission on banking standards, led by Tory MP Andrew Tyrie, which made its final report in April.
The Bill was first published on the floor of the House of Commons in February and passed through both houses with all-party support.