LONDON Feb 4 British banks that fail to guard
their day-to-day banking from risky investment activities will
face being dismantled, finance minister George Osborne is set to
say later on Monday.
Britain is in the midst of a big shake-up of its system of
bank regulation in the wake of the 2008 financial crisis, when
65 billion pounds ($102 billion) of public money was needed to
shore up Royal Bank of Scotland and Lloyds Banking Group
Banks are already expected to have to 'ring-fence'
activities such as standard bank accounts and payments from
riskier investment banking -- something which will hit major
players such as Barclays, HSBC and RBS.
But Osborne says in excerpts of a speech provided by his
office that he is prepared to go further and break up banks
which fail to keep to the rules -- a key demand of lawmakers who
reviewed government plans late last year.
"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," Osborne says. "In the jargon, we will
'electrify the ring fence'."
Under the new rules, the Bank of England will be responsible
for monitoring whether banks ensure that risks taken by their
investment banking arms do not endanger their retail sides.
If the BoE identifies a breach, the final politically
sensitive decision on whether a bank should be forced to sell
off one of the two arms will be taken by the government.
Legislation will go to parliament later on Monday, and in
his speech Osborne is also expected to detail new rules on
limits to banks' leverage.
Under the most recent plans, leverage was to be set at 33
times banks' capital, weaker than an original proposal for a
maximum of 25 times.
In December, a cross-party group of lawmakers reviewing the
plans said it was "not persuaded by the government's relaxation"
of the leverage rule and added that the Bank of England should
set the leverage cap.
Osborne's plans are politically controversial at a time of
public anger at banks, which continue to face the repercussions
from scandals related to mis-selling insurance and misreporting
LIBOR interest rates.
The opposition Labour Party said it was concerned that
Osborne would not revert to the original proposal, and also that
breaking up banks would only be possible on a bank-by-bank
basis, rather than for the entire industry.
"If ... the Chancellor is planning to stop short on both the
backstop powers and legislation for the leverage ratio, then
there will be a very real sense ... that despite all the
rhetoric the Chancellor hasn't got the appetite for the radical
banking reform we need," Labour lawmaker Chris Leslie said.
But Osborne -- who will deliver his speech at U.S.
investment bank J.P. Morgan's offices in the southern
English city Bournemouth -- insists his reforms strike the right
balance between responding to public anger and avoiding a
"Our country has paid a higher price than any other major
economy for what went so badly wrong in our banking system. The
anger people feel is very real. Let's turn that anger from a
force of destruction into a force for change," he says.
"Any bunch of politicians can bash the banks ... but what
good would that do our country? The jobs, the investment, the
banking system we all need would go with it."