UNITED KINGDOM: Britain's top banks should shield retail operations from riskier investment banking activities and boost capital levels to protect taxpayers from future crises, a government-commissioned report says

Record ID: 566405

  • Title: UNITED KINGDOM: Britain's top banks should shield retail operations from riskier investment banking activities and boost capital levels to protect taxpayers from future crises, a government-commissioned report says
  • Date: 11th April 2011
  • Summary: LONDON, ENGLAND, UNITED KINGDOM (FILE) (ORIGINALLY 4:3) (REUTERS-ACCESS ALL) EXTERIOR OF A BRANCH OF BRADFORD AND BINGLEY BANK
  • Embargoed: 26th April 2011 13:00
  • Keywords:
  • Location: United Kingdom, United Kingdom
  • Country: United Kingdom
  • Topics: Finance
  • Reuters ID: LVA83J2T4GYMIOABEX3SJSMKH6XQ
  • Story Text: Top british banks should shield retail operations from riskier investment banking activities and boost capital levels to protect taxpayers from future crises, a government-commissioned report said on Monday (April 11).
    The aim of the report was to make banks less risky and better able to absorb losses, thus ensuring that vital operations like payments systems and cash for ATMs are kept running if a lender nears collapse as RBS did three years ago.
    "Taxpayers should not be on the hook for the banks, so reform is needed to make banks better able to withstand losses, and easier and less costly to sort out if unfortunately they still get into difficulties," said John Vickers, chairman of the banking commission.
    Vickers called for a full separation of retail and investment banking.
    "On structural reform, if they were done in the sharpest form, that would entail separation, full separation in the retail banking on the one hand and wholesale and investment banking on the other," Vickers told a news conference.
    The report also proposes a minimum capital level banks must hold.
    "Systematically important banks should have an equity ratio of at least 10 percent provided also they have genuinely loss-absorbing debt," Vickers said.
    British finance minister George Osborne said he welcomed the analysis put forward by the interim banking report.
    "Our goal is to make sure in the future we have safer banks but also that millions of pounds of taxpayer money is not spent again bailing out those banks," Osborne said.
    Some analysts suggested the proposed reforms were soft on banks.
    "If you're going to pick a winner in this you must pick the banks as a winner in this. It's not a radical change. Yes, it's a significant change in retail or high street banking alone, that's going to have extra insurance policies put on that, which is a very good thing, but the investment banking components are going to be able to operate just as they did before," said economist Ralph Silver.
    The suggested reforms to the financial sector will affect the Lloyds Banking Group most significantly, which may have to sell much more of its business than already required by regulators to boost competition in the banking sector.
    The government owns roughly 41 percent of Lloyds and 83 percent of rival Royal Bank of Scotland after bailing out both banks with billions of pounds of taxpayers' money during the credit crisis.
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