New measures to reform the banking industry in the UK were announced today by Chancellor George Osborne.
In a speech on the Banking Reform Bill, which is being introduced in Parliament today, the chancellor said that big banks will be broken up if they fail to follow new rules on ring-fencing their investment operations from their retail banking activities.
The rules are intended to prevent another taxpayer bailout of the financial system.
According to Osborne the high street banks will have different bosses from the investment banks and will manage their own risks, but not the risks of the dealing floor in the City. The investment banks will not be able to use customers’ savings to fund their inherently risky investments, he added.
In order to enforce the rules, the chancellor announced that the regulator and the Treasury will have the power to break up the banks altogether. This has been described as “electrifying” the new ring-fence between the banks’ risky investment bank activities and their high street branches.
Making it clear that he wants to see fundamental change across the industry, Osborne said that “2013 is the year when we reset our banking system.” He claimed that banks had failed to take responsibility for their actions and said that people are still angry, five years after the financial crisis first hit.
Broadly, the changes outlined in Osborne’s speech today are intended to reform four elements of the banking system this year.
The government is introducing legislation to separate the branches on the high street from the investment banks to protect taxpayers when mistakes are made.
More widely, the Parliamentary Commission will be looking at how to improve the professional standards and culture of the banking sector.
In April a new industry watchdog will be launched, with new powers to keep the banks safe so they don’t bring down the economy.
The last piece of reform is designed to ensure that the banking system is working for customers, by opening up the payment systems and making it easier for bank customers to switch from one institution to another.
Osborne said that, from September, every customer of every bank in Britain will be able to switch their bank account from their existing bank to another one within seven days. The government will also make sure that payment systems serve the needs of consumers, not the needs of the established banks, he pledged.
Anthony Browne, chief executive of the British Bankers’ Association, claimed the Banking Reform Bill creates uncertainty and will make it more difficult for banks to raise capital, but Ed Balls, shadow chancellor with the opposition Labour Party, said that the reforms do not go far enough, with George Osborne “still failing to deliver the radical banking reform we need.”