Banking reforms: battlelines drawn up over Vickers proposals

• Row expected over timing of ringfencing plans • Lib Dems hope to get legislation into financial services bill • Report expected to include estimated cost of proposals A row over the timing of reforms to prevent another taxpayer bailout of the banking system is set to erupt on Monday after Sir John Vickers outlines his proposals to force banks to “ringfence” their high street operations from riskier “casino” investment banking arms. In a long-awaited review by his independent commission on banking (ICB), Vickers (pictured below) is expected to support calls for early implementation of the plans which are being announced almost four years to the day after the run on Northern Rock and three years after the collapse of Lehman Brothers that eventually sparked the 2008 banking crisis. Accused of bottling the most radical options when he announced his interim report in April , Vickers will want to spell out that he is proposing solutions for the banking sector that can be implemented practically and without causing too much disruption to the economy. Senior Liberal Democrats are keen to ensure that the legislation is included in the financial services bill currently being used to break up the Financial Services Authority, as is the shadow chancellor, Ed Balls. It is not clear that the Conservatives believe the bill is the right way to push through the law changes. Since April, shares in the big four banks – Royal Bank of Scotland, Lloyds Banking Group, HSBC and Barclays – have plunged on anticipation of the impact of ringfencing on their costs amid the crisis in the eurozone. Lloyds is expected to receive concessions from the ICB, which in April had called for it to sell off more branches on top of the 632 it must dispose off to meet EU rules on state aid. Such a proposal is now thought to have been dropped . Vickers is expected to publish an estimate of the cost of the ringfencing proposals – which analysts have put at between £2bn and £10bn a year, largely because of a rise in the cost of banks’ funding their operations. Bankers are now seeking clarity on how the ringfence should be constructed and the deadline for implementing the changes. There is mounting expectation that they may be given until 2015, or even 2019 when new international capital standards must be in place, to implement some of the proposals. The banks will be hoping they will able to move capital across the ringfence provided they achieve the minimum capital requirements set out. Vince Cable, the Lib Dem business secretary and an early advocate of full-scale separation of high street banks and investment banking, kept up the pressure this weekend. “Banks must be left under no illusions that reform is coming,” Cable said in the Mail on Sunday. “The recession is not an excuse for postponing banking reform. Indeed, our economic recovery depends on it.” He argued that the banks should bear the costs of the reforms themselves. “Instead of passing [the costs] on to customers, banks should pay by reducing their lavish remuneration packages and payments to shareholders.” It is understood that putting the necessary law changes into the financial services bill has not yet been ruled out and the chancellor, George Osborne, who spent Sunday ploughing through the 300-odd page report, has already given a warmer than expected response to the proposals. He is expected to address the Commons on Tuesday and pledge to set out a timetable for a full response – and the publication of a white paper – by the end of the year. But advocates of reform are sceptical that the Vickers proposals will go far enough. Gavin Hayes, general secretary of the thinktank Compass, said: “We will be calling on the government to go for a full breakup. There can be no delay. We need reform as soon as possible. “We have concerns that the firewall Vickers is going to propose won’t go far enough in preventing another crisis.” What is expected from Vickers • Banks should be required to ringfence their high street operations – including private savers and bigger businesses – from their “casino” investment banking arms. • The ringfenced operation should have a capital buffer of at least 10%. • The capital cushion should comprise financial instruments that are capable of absorbing losses, not just traditional equity, such as debt known as contingent capital and so-called “bail in” bonds. Savers should have a claim over the assets of a collapsing bank before bondholders. • There should be increased competition among high street banks – for example, it should be easier to switch current account providers. • The new Financial Conduct Authority being spun out of the Financial Services Authority should have a clear mandate to promote competition. Banking reform Banking Financial sector Vince Cable George Osborne Jill Treanor guardian.co.uk

Posted by on September 11, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.