| LONDON, June 13
LONDON, June 13 The British government will on
Thursday say it will force banks to adopt the vast swathe of
reforms recommended by an independent panel last year to
safeguard taxpayers and the economy from future financial
Finance minister George Osborne, taking forward the advice
of the Independent Commission on Banking (ICB), will tell banks
how the government will "implement those recommendations in
detail" to stop problems in the sector "spilling onto our high
"High-street (retail) banking will be ring-fenced so that
taxpayers are better protected when things go wrong," he will
say, according to extracts from his annual Mansion House speech
to the financial elite in London.
The proposals will be published on Thursday in a White Paper
- a formal government policy document that spells out the
government's intentions - and are expected to be turned into
draft legislation later this year.
The proposals were the result of a long study into the
causes of the credit crunch which forced Britain to bail out
There had been some speculation that the government, under
intense lobbying from the powerful banking sector, would have to
water down some of the tougher ICB recommendations, but the
indications are that there will only be minor concessions.
The Conservative-led coalition government said in December
it would push the reforms through broadly as they were.
"I believe that we have found a workable way to solve what I
called the 'British dilemma' - so we are proposing to protect
taxpayers in a way that does not make the UK uncompetitive as a
home of global banks," Osborne will say.
RINGFENCE, CAPITAL BUFFERS
Central to the changes - to be in law by the end of 2015 and
in place at banks by 2019 - is a move to separate retail
operations from riskier investment banking operations.
Small banks which do not pose a risk to the financial system
are expected to be exempted from the so-called "ringfence" but
around 90 percent of deposits at bigger banks will be protected
The ringfenced part of the bank should not be allowed equity
in the non-ringfenced section and banks will also have to obey
new governance rules to ensure an array of independent voices on
Some simple derivative and hedging activity is likely to be
allowed in the ringfenced retail section if it is necessary for
small business banking services.
Another key plank of the changes aimed at shifting the risk
away from taxpayers will see savers and depositors put first in
line to get their money back if their bank fails.
Under the proposals, creditors would be the first port of
call for funds to prop up a struggling institution.
Banks are also expected to have to hold enough capital to
cover 17 percent of their assets as a safety net, going beyond
international standards - a move that has been opposed by the
financial sector which fears it could hamper their activities.
The government is expected to confirm that the non-UK
operations of banks - primarily at institutions such as HSBC and
Standard Chartered - will be exempt from those extra buffers as
long as those operations could not endanger Britain's financial