Retail banking and investment banking operations are to be completely separated, as this will ensure taxpayers are not exposed to failing institutions in the future.
The government wants to ring fence the two operations by 2015. The Chancellor, George Osborne has said the government will put the legislation in place before the end of the current parliament.
It follows the government’s decision to accept the “full package of reforms” presented by the Independent Commission on Banking (ICB) in September.
Chancellor George Osborne has committed to implementing the reforms in full by 2019, and the government will publish a White Paper in spring 2012 setting out further detail on how the recommendations will be implemented.
In advance of that, it said it will accept views on how to implement the plans.
Business secretary Vince Cable said: “The potential costs of an unsafe banking system are clear to everyone. Our reforms will protect taxpayers from the riskier aspects of banking and boost competition without harming the ability of UK banks to lend, to invest and to compete.”
Larger banks will also be required to hold higher amounts of capital on their balance sheets, while the government has agreed on the need for resolution authorities to have a statutory bail-in power to assist in bank resolution.
However, if a bank can show that its non-UK operations do not pose a risk to UK financial stability and thus to the UK taxpayer, this requirement may not apply to those operations.
See the government’s full response at:
http://www.hm-treasury.gov.uk/fin_stability_regreform_icb.htm
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