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Bank reforms become law but Treasury warns bailout risks remain

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.


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. What he probably meant to say was one government can build a safer system another one can demolish it, e.g. labour

  2. Matthew Barsauckas 18th December 2013 at 3:41 pm

    This is a step in the right direction, however belated. Governments will always be the lender of last resort. No change in that, but the governance and actions of corporate officers is now clearly in focus and the course of blame can be clearly outlined to those skippering the corporate ships, with the inherent legal or criminal liability recourse function now firmly in place. Banking at board level will never be the same again ……… profit making excluded.

  3. Peter, i think you are entirely correct. Todays government is basically saying that we cannot stop anyone else in the future changing things and that equally means us, as by the time this comes into law it will 2019 and therefore a different government – wasn’t that happened with the FSA/FCA???

    It is a complete joke and a complete waste of time as has already been proven. What is the point of bringing in rules to deal with the board of directors of companies as the board of directors of the banks have already categorically stated they had nothing whatsoever to do with the collapse of any of the banks!

    All sounds like a big step back anyway – segregating the retail and investment arms of the banks – er wasnt that case many years ago? and didn’t we have a perfectly working banking system years ago? And at what point could Directors etc of companies deny responsibility for anything that was happening? Sorry must dash got to run my business into the ground, deny all knowledge and then ask the government to bail me out before this law is passed – damn too late again!

  4. Matt

    I agree with the new rules and think that there should be segregation and I also believe that manager and Directors should fact prosecution if they have broken rules or acted illegally.

    Would I prosecute a Director in charge of a Bank making decision around marketing PPI – Yes I would prosecute them for Fraud!!!. After all PPI is Britain’s largest FRAUD because the Banks needed the cash to give to the investment side. All connected

    When the Banks last went bust in 1929 there were a lot of new rules that took Banks 50 years to undo that was my point. People and governments forget the reason why those rules are there. I just hope this time they don’t

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