George Osborne Vows to 'Electrify' Bank Ring Fence in New Break-Up Threat
By Martin Baccardax | February 4, 2013 6:36 PM EST
UK Chancellor George Osborne will set out plans to give lawmakers the power to break up lenders that do not conform to the government's strict new proposals to protect savers from risky investment banking activities.
In a speech at the office of US investment bank JPMorgan in Bournemouth, Osborne is expected to warn banks that failure to comply with his government's version of the Vickers Report - an independent study on the risks banks create for the broader financial system that has called for the ring-fencing of retail operations from investment - will result in their complete separation at the hands of parliament.
"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 ring fence," the Chancellor will say in his speech.
"In the jargon, we will 'electrify' the ring-fence."
The new legislation is expected to be put to lawmakers today and will include plans to provide the Bank of England, which is set to become the country's chief market regulator this year, the authority to identify individual banks which are in breach of the new regulations and recommend separation to the Treasury in the most extreme cases.
"Last year both Labour and The Parliamentary Commission on Banking Standards called for legislation for a backstop power, keeping open the option to fully separate retail banking from investment banking - but the Government refused to commit to that," said Labour MP Chris Leslie, the party's Shadow Treasury Minister, in a statement emailed to IBTimes UK.
"If the Chancellor is now being dragged towards a partial climb down, this is a step in the right direction - but unless he legislates for a strong reserve power with the option for full separation of banks across the board, and not just for one or two banks, then this will be of little use."
While the new rules come at a politically sensitive time for the banking industry, which continues to reel from a series of scandals that have claimed some of the industry's biggest names and will potentially cost many billions of pounds in fines and compensation, it also comes at testing juncture for the Chancellor.
Britain's economy is struggling to avoid a so-called triple-dip recession after the Office for National Statistics confirmed a 0.3 percent contraction in the final three months of last year. At the same time, several media reports have suggested Prime Minister David Cameron is facing calls from within his own party to replace Osborne as the nation's finance minister if his March budget statement is unable to provide support for Conservative candidates in the spring elections.
Curiously, the tough proposals for UK banks are also being introduced as European authorities are facing questions from their own banking sector over plans to separate trading and investment from retail activities.
EU finance chief Michel Barnier has pledged to push forward with a proposal from Bank of Finland Governor Erkki Likkanen that would force banks to move riskier operations into new units with capitalisation that is separate from the main holding company.
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