UNITED KINGDOM: British banks to face some of the world's toughest new regulations by the end of the decade as the government tries to shield the high street banks and the public from investment gambling

Record ID: 566370

  • Title: UNITED KINGDOM: British banks to face some of the world's toughest new regulations by the end of the decade as the government tries to shield the high street banks and the public from investment gambling
  • Date: 13th September 2011
  • Summary: LONDON, ENGLAND, UK (FILE) (REUTERS) PEOPLE ON STREET WALKING BY HSBC BANK LLOYDS TSB BANK AND PEOPLE AT CASHPOINT TWO WOMEN AT CASHPOINT WOMAN PUTTING CARD INTO CASHPOINT LLOYDS TSB SIGN PEOPLE AT BARCLAYS CASH MACHINE
  • Embargoed: 28th September 2011 13:00
  • Keywords:
  • Location: United Kingdom
  • Country: United Kingdom
  • Topics: Economy
  • Reuters ID: LVAA8CSW02DE1UTQEMISMYEPNLN0
  • Story Text: Britain's banks face some of the world's toughest regulations under reforms outlined on Monday (September 12), which require them to insulate their retail lending activities and store up billions in extra capital at an annual cost of up to 7 billion pounds ($11 billion).
    Finance minister George Osborne said he would fast-track legislation based on the proposals, aimed at avoiding a repeat of the financial crisis which led to two of Britain's biggest lenders, Lloyds and Royal Bank of Scotland, being bailed out with massive injections of government cash.
    It's an attempt to avoid a repeat of the big crash in 2008, when the rot in banks investment operations infected the retail side, or high street banking which lends to families and businesses.
    "It would help insulate vital UK retail banking services from global financial shocks. That's particularly important for us in the UK given the way that major UK banks combine retail banking, high street banking, with global wholesale and investment banking," said John Vickers who heads up the Independent Commission on Banking (ICB) and who was asked by the government to suggest reforms.
    Osborne said the reforms will still promote growth but protect the public. He said it's about: "How we have a new banking system that lends to families, that lends to businesses, yes competes around the world and creates jobs, but also doesn't cost the tax payer billions of pounds when it goes wrong."
    The ICB also recommends the banks put aside up to 20 percent of the cash or other assets to shore them up in the event of financial collapse.
    It's estimated it will cost the banks up to 7 billion pounds, by comparison, new global regulation due to come into force in 2019 asks banks to hold a minimum of 7 percent or a likely 9.5 percent for the biggest institutions.
    Business Secretary Vince Cable says they can easily afford the costs of the British reforms.
    "The benefits far exceed the costs to the banks. And of course the banks have got very lavish payments and dividends and that's how they could make economies," he said.
    Britain's "Big Four" banks -- Barclays and HSBC as well as Lloyds and RBS -- have fought against tough new regulation on top of EU and global reforms. They form a powerful lobby since financial services contribute some 10 percent to the UK economy.
    Mark Littlewood, Institute of Economic Affairs, said it's not right to try and protect all banks.
    "The approach that seems to have been taken is to try and stop bank failure, now nobody wants banks to fail, nobody wants any business to fail, but there is no other area of the economy in which we would try and make sure that no business ever failed. Failures will occur," he said.
    Many in the city fear the reforms will harm British banks' competitiveness in the global market. Shares reflected that, with most bank stocks falling.
    The reforms won't come into effect until 2019.
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