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Chancellor to introduce ‘electrified’ banking ringfence

George Osborne 480

Chancellor George Osborne will today warn banks they risk being broken up unless they comply with new rules to ringfence their retail and investment operations.

A report in the Financial Times says Osborne has bowed to political pressure over an “electrified” ringfence and will give regulators the power to break up banks which try to undermine the new rules.

Andrew Tyrie’s Parliamentary Commission on Banking Standards proposed an electrification of the ringfence, including back-up regulatory powers to force banks to fully separate their retail operations from their investment arms, as part of its report published before Christmas. It was originally thought the Government would reject or water-down Tyrie’s proposals but the FT report suggests the Government has now agreed to the plans.

The British Bankers’ Association argued the move would make it harder for banks to raise capital and would create “uncertainty for investors”.

Today the Banking Reform Bill will be published, setting up a ringfence around high-street retail banking, as recommended by the Vickers report, to protect it from riskier investment baking operations.

According to the FT, Osborne will today say: “My message to the banks is clear: if a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether – full separation, not just a ringfence.”

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. So having a sword of Damocles hanging over their heads is the best way for the government to ensure banks’ compliance with uncertain and ever changing rules?

  2. “So having a sword of Damocles hanging over their heads is the best way for the government to ensure banks’ compliance with uncertain and ever changing rules?”

    YES!

    In other regulated industries, the regulators have the power to shut companies down altogether.

    A regulator with “teeth” is the only way to ensure compliance.

  3. Really? When was the last time a water company, or radio station or school was shut down for non compliance with statutory rules?

  4. The ‘big four’ banks have demonstrated beyond any argument that they cannot be trusted.

    Separation of the retail and investment arms is essential (reprising 1930’s Glass-Steagal) and if that means retail customers have to pay for their banks accounts, then so be it.

    In the retail sector, conventional banks are living on borrowed time anyway, as more efficient web based mediators e.g. Zopa etc, move into the space.

    ‘Banksters’?

    Unfortunately, there is some truth in it.

  5. Why are we still talking tough and not doing anything, these are just a few of the banking reforms I would bring in as banks should never be too big to regulate, too big to fine, all too big to prosecute.

    I would break up all of our top 4 retail banks into at least three individual separate banks.

    I would force retail banks to sell their investment bank arms as I certainly wouldn’t trust any bank CEO to keep assets separate.

    I would introduce a new code of conduct for all bank senior directors and executives and failure to comply with this code of conduct could be punishable in the courts and ultimately prison sentences. Until you get personal with regulations and indeed criminal convictions people were always hide behind organisations and committees.

    I would limit any bonus payment to one and a half times salary and link the total paid remuneration to the average bank employer salary eg 20 times as an absolute maximum.

    I would give greater powers to shareholders in the remuneration decisions of executive pay and of course highly paid employees including those working on trading floors.

    I would do away with the current pay remuneration committees who are loaded with individuals with vested interests as they tend to sit on each other’s remuneration panels.

    Until government starts to address some of the subjects raised in my comments above the general public will have no trust in banks.

    Governments should never allowed the amount of bank mergers that have gone ahead in the last 30 years to create these great big global conglomerates. Banks have far too much power and as previously stated you should never have an organisation that is too big to regulate too big to fine or too big to prosecute, the fines are being handed out at present are effectively parking tickets to organisations that manage billions.

  6. To

    Sam De Zoysa | 4 Feb 2013 9:19 am

    I think you find a school can be closed down or even have a headmaster parachuted in and find itself under special measures to improve the standard of education.

    Water companies can find themselves been prosecuted the corporate manslaughter if their water is contaminated and even individuals can find themselves prosecuted under health and safety legislation.

    What angers the general public and many others working in financial services is that no Senior BANKER has faced prosecution for fraud, false accounting, or even in the financial Times allegations that Barclay’s in its latest scandal misuse of company funds. I could go on but I think you get the general idea..

  7. High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/36b025d6-6e2a-11e2-983d-00144feab49a.html#ixzz2JvZO3hIV

    The purchase of securities sold by investment banks that turned out riskier than first thought (i.e. some CDOs etc) is not going to be stopped by this ring fence, integrated banks just will not be able to buy their own. If savers in commercial banks demand higher rates of interest, banks with poor judgement and surplus liquidity and no investment banking activities will search out these investments again and nothing will have changed.

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