BRITAIN’S TOP banks will have to protect their retail businesses from investment banking activities after the government backed a plan to overhaul the industry and shield taxpayers from future losses.
Finance minister George Osborne used a speech to bankers in London’s Mansion House last night to throw his weight behind the ringfencing proposal, in a move aimed at showing the public that the coalition government is fulfilling its promise to be tough on the banks.
Mr Osborne also said he wants to find a buyer for Northern Rock – the bank that nearly collapsed and was fully nationalised during the credit crisis – by the end of the year.
The ringfencing reforms go further than measures being proposed by other countries, although the capital requirements are not likely to be as tough as in Switzerland.
But full specifics of the plan, which aims to shield retail depositors and ensure taxpayers don’t have to bail out the industry in any future crisis by creating much larger capital cushions, have not yet been finalised.
“Retail ringfencing would not be our first option, but we can see ways it would work, though clearly there’s a lot more work to do on the details and the specifics,” Barclays chief executive Bob Diamond said.
The plan is likely to see domestic banking become a low-risk utility service, while riskier investment banking – dubbed “casino banking” – will face higher funding costs, potentially forcing some companies to shrink or reshape.
“Until we know which entities will issue bonds, and what assets they will finance, we’re miles away from being able to analyse a bond investment in banks,” MG Financial Institutions research head Tamara Burnell said.
While a blow to the banks, some had expected the proposals to be more severe. As now proposed, they are unlikely to prompt banks to follow through on threats to leave Britain in favour of lighter-touch regulatory regimes, industry analysts said.
“It’s yet more regulation that they’re going to have to deal with, which will impact their profitability,” said Ion-Marc Valahu, fund manager at Geneva-based ClairInvest, which owns Barclays bonds. – (Reuters)
