Britain's banks await shake-up plans

11th September 2011, Comments 0 comments

Plans for a major shake-up of Britain's banks are revealed on Monday when a government-appointed commission publishes final recommendations aimed at avoiding further state bailouts of lenders.

However following intense lobbying by major British banks such as HSBC and Barclays, reports suggest that any reforms may not occur until after the country's next general election in 2015.

The Independent Commission on Banking (ICB) is expected to confirm its initial proposals published in April that called for a "ring-fencing" of lenders' retail businesses, thus avoiding banks being sunk by investment division losses.

It is also likely to repeat calls for banks to set aside more capital to prevent future state bailouts and could again recommend that state-rescued Lloyds Banking Group (LBG) sells more assets to boost competition.

However it is not expected to call for the banks to be broken up, as some argue is necessary for real reform.

The ICB's creation in June 2010 followed fierce criticism over so-called casino banking -- a term used to describe the high risks taken by investment bankers denounced for their role in the global financial crisis of 2008.

Finance minister George Osborne set up the commission which is chaired by John Vickers, a former chief economist at the Bank of England.

"The Vickers report as we all know is going to recommend the retail and investment banking divisions of UK banks are separated," said Simon Denham, head of Capital Spreads trading group.

"In theory it all sounds like a nice idea, but the timing is bad particularly when banks have (already) been forced to increase the amount of capital they hold, whilst being continually badgered to increase the amount of lending they do and at the same time cope with a raft of new regulations."

The BBC has reported that while Vickers is expected to recommend that the government legislates almost immediately over ring-fencing, he will advise that such firewalls be phased in over a number of years.

Other media reports suggest any change may not occur for at least four years.

There are fears that swift implementation of ring-fencing amid renewed weakness in the global economy could pressure Britain's biggest banks to relocate abroad. HSBC and Barclays are both rumoured to be considering moving their headquarters away from Britain.

The ICB said in April that Britain's banks should raise core capital ratios to "at least" 10 percent, significantly more than the 7.0 percent required by 2018 under new international "Basel III" rules that were agreed last year.

It also called for improved measures to help consumers switch current accounts.

Also set to be affected by the plans will be Royal Bank of Scotland, which like LBG required a massive bailout from the British state following the financial crisis. The two lenders have meanwhile cut tens of thousands of jobs in recent years.

Britain's biggest union Unite last week said that 150,000 jobs had been lost across the country's financial services industry since the near-collapse of another British bank, Northern Rock, in late 2007.

"However, little has changed to improve the regulatory regime and prevent a future crisis," Unite said in a statement.

"Despite these astronomical staff cuts, the sector continues to resist the calls for regulatory reform to ensure that our economy is never brought to its knees in the same way.

"Ahead of the report from the Independent Banking Commission on Monday the scale of jobs cuts must not be ignored," the union added.

© 2011 AFP

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