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Labour says banking reform plans may not prevent future bail-outs

Labour Shadow Treasury financial secretary Chris Leslie warns Sir John Vickers’ proposals for banking reform may not prevent future taxpayer-funded bailouts.

This week, the Independent Commission on Banking published its interim report on reforming the banking system. The commission, chaired by Vickers, says banks should maintain minimum capital ratios of 10 per cent and ringfence retail banks.

But Leslie says during the financial crisis some banks nee-ded reserve ratios higher than 10 per cent.

He says: “In the crisis some retail losses needed more than a 10 per cent absorption, so the proposals do not completely stop the taxpayer from having to provide an implied underwrite.”

Basel III requires banks to hold capital reserves of 7 per cent. Leslie says if the Government decides 10 per cent is the minimum required, Chancellor George Osborne should push for international agreement.

The Liberal Democrats manifesto, published in April 2010, called for a total split between retail and investment banking.

But LibDem Treasury spokesman in the Lords Lord Newby says the ICB’s call for banks to ring-fence their UK retail banking activities from the business as a whole would be sufficient.

He says: “The complete split was never achievable in the context of the coalition but the ringfencing is a very clever way of protecting the public without the split.”

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