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LONDON: Britain’s banks will be broken up if they fail to ring-fence retail operations from their investment divisions to avoid any future state bailouts of lenders, Finance Minister George Osborne warned yesterday.
As the government formally published legislation aimed at radically altering the landscape of Britain’s financial sector, Chancellor of the Exchequer Osborne used a speech to say that “2013 is the year when we re-set our banking system.”
Addressing staff at US investment banking giant JP Morgan in Bournemouth, southern England, he said: “My message to the banks is clear: 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 said: “In the jargon, we will “electrify the ringfence,” adding that the Bank of England would be “the super cop” of Britain’s financial system going forward.
The chancellor outlined four key changes — “a brand new watchdog with new powers to keep our banks safe so they don’t bring down the economy”; “a new law to separate the branch on the high street from the dealing floor... to protect taxpayers when mistakes are made;” “changing the whole culture and ethics” of banking and giving “customers the most powerful weapon of all: choice.”
The government had already announced plans to force banks to ring-fence operations by 2019, in a bid to avoid taxpayers having to bail out troubled banks such as RBS and Lloyds — as was the case during the financial crisis.
But the draft law has been toughened after Britain’s Parliamentary Commission on Banking Standards recently complained that the proposals fell “well short of what is required.”
Osborne had previously warned the commission against “unpicking the consensus” on structural reform of the banking sector but appears to have accepted its warning that the draft law left room for loopholes. “Today, we are publishing the legislation that will turn... this consensus for change into law,” he said yesterday.