Osborne to address MPs on Vickers' report into banking

 

Mr Osborne will give a statement to Parliament after the government publishes its response to the report

Chancellor George Osborne is expected to announce to MPs that he will legislate to separate retail banking from more risky investment activities.

The move was recommended by Sir John Vickers in his report into banking, launched after the financial crisis.
Business Secretary Vince Cable told the BBC on Sunday that the government would accept the report "in full".
However, BBC Business Editor Robert Peston has learned that reform may not be the 100% as originally billed.
In one key area the banking industry has succeeded in getting the Treasury to water down one of Vickers' recommendations, he said.
This is the proposal that the biggest UK banks should have enough capital plus loans that could be converted into cash to cope with losses equal to one fifth of the size of their total balance sheet.
As Robert Peston understands it, HSBC has successfully argued that it would be disproportionately expensive for it to do this. In HSBC's case they are much bigger outside the UK than inside.
If they had to raise up to 20% of their global balance sheet they would have to raise huge amounts of expensive new capital or loans. The Treasury is to soften the blow. It will do this by requiring the big banks to raise capital and loans equivalent to 20% of that part of their balance sheet, which British tax payers would have to support in a crisis.
Banking overhaul However, our correspondent said Sir John Vickers and his commissioners had been successful in achieving most of their aims, and the UK's financial system will be overhauled.
"Our banks will in the coming five years be forced to undergo significant financial, cultural and managerial reconstruction."
Labour's shadow business secretary Chuka Umunna said the recommendations needed to be implemented in full. He told the BBC it was important that Britain had a system that could provide businesses with the credit they needed.
"Now, we still have short-term issues with the access to credit that businesses are facing, they're having problems with, and we need to make sure that it's not watered down. Which is one of the reasons we've said that the chancellor should ask Sir John Vickers to come back in twelve months' time and report on progress of implementation of those recommendations."

Even though the banks may disagree, it looks as if their expensive and intensive lobbying to get the Vickers report watered down has come to very little. Their only success has been the time frame. Banks will not be forced to partially split their investment banking divisions from their retail or High Street divisions until 2019 at the latest.
But apart from that, banks will have to begin a process to completely rearrange their corporate affairs and raise billions in additional capital, which non-UK based banks will not have to do.
Barclays boss Bob Diamond claims that the reforms will end up costing the entire banking industry up to £7bn. Before we all wipe our crocodile tears away, let's not forget who might ultimately pay for that in higher interest rates and lower borrowing amounts? You and me.

In the UK, the financial crisis started with Northern Rock being bailed out by the taxpayer, but went on to include both Lloyds and RBS receiving substantial sums of public money.

The Independent Commission on Banking was set up by the coalition Government last year to review the financial sector after the crisis.
It published its report in September and looked into ways of avoiding such bank failures in the future.
The report said it would "make it easier and less costly to resolve banks that get into trouble".
It recommended that a bank's retail business should be ring-fenced from its investment business, with this and other recommendations being implemented by 2019.
Mr Cable seems to be sticking to this timetable, promising on Sunday that "primary legislation will be done in this parliament".
He told the The Andrew Marr Show: "Our big banks were at the very centre of the financial crisis, what the Europeans call Anglo-Saxon financial capitalism. It needs reform."
Mr Osborne will give a statement to Parliament after the government publishes its response to the report.