Sun Dec 18, 2011 6:49am EST
* Govt to issue formal response to ICB on Monday
* Govt to “accept in full” ICB proposals -Cable
* ICB legislation to be done within current parliament
-Cable
LONDON, Dec 18 (Reuters) – The British government will
give its full backing to a shake-up of the banking sector
proposed by the country’s Independent Commission on Banking
(ICB), British Business Secretary Vince Cable said on Sunday.
“Our own financial services sector needs reform. Our big
banks were at the very centre of the financial crisis, what the
Europeans call Anglo-Saxon financial capitalism. It needs
reform,” Liberal Democrat minister Cable told the BBC.
“That’s why tomorrow, the government is going to launch this
initiative on the banks accepting in full the Vickers
commission. We’re going to proceed with the separation of the
banks, the casinos and the retail business lending parts of the
bank,” he added.
In September, the ICB – headed by Oxford University academic
Sir John Vickers – said top British banks should “ring-fence” or
protect their retail banking operations from their riskier
investment banking arms, in order to give better protection to
taxpayers in case of future financial crises.
It said banks should hold core capital of 10 percent, plus a
further 7 to 10 percent of capital that could take the form of
“bail-in” bonds – debt that can take a loss or convert into
equity to recapitalise a bank if it hits trouble.
There would also be limits to the extent to which a bank
could use money in its retail arm for its investment bank – a
move that will increase funding costs for British lenders.
The ICB stopped short of seeking a full split of a retail
and investment bank into two, separate companies. Instead, it
said banks could keep their parent holding company but should
set a “ring-fence” between the retail and investment arms.
Britain’s top banks – Barclays, HSBC
, and part-nationalised lenders Royal Bank of Scotland
and Lloyds – have lobbied against much of the
reforms.
They have argued they could be put at a competitive
disadvantage to rivals in Europe, Asia and the United States,
who do not face the same sort of shake-up.
IMPLEMENTATION STILL SEVERAL YEARS AWAY
The Conservative/Liberal Democrat coalition government set
up the ICB after the 2007-2008 credit crisis saw Britain have to
nationalise Northern Rock and part-nationalise RBS and Lloyds,
with 66 billion pounds of taxpayers’ money pumped into RBS and
Lloyds.
The proposals would see Britain follow Switzerland and
Sweden in setting a benchmark in capital rules on banks, since
the size of each of those countries’ bank sectors is greater
than their national GDP (gross domestic product), thereby
creating a greater risk for taxpayers.
The ICB has recommended that its reforms be adopted by 2019.
Its proposal for stricter capital requirements follows a
similar move by the Basel committee of global banking
regulators, who have also set a 2019 timetable on this.
But the banks have said the costs of the reforms could make
it harder for them to lend to businesses and customers, and
could therefore damage the overall economy.
They have said that the costs would be more than the top end
of the 4-7 billion pounds ($6.21 billion – $10.87
billion)estimated by the ICB.
The proposal on “bail in” debt has been attacked by HSBC and
Standard Chartered , who have warned they
could quit their London headquarters for rival business centres
in Asia, where they make much of their profits.
HSBC estimates that holding ‘bail-in’ debt would cost it at
least $2.1 billion a year, while Barclays said the cost would be
at least 1 billion pounds.
Standard Chartered said the ICB’s proposals were “flawed in
maths and logic” and that Britain should wait for international
rules on bail-in debt.
Cable said the new banking legislation caused by the ICB’s
reforms would be completed within the lifetime of the current
parliament, namely before 2015.
“It’s got to be done. We can’t be in a position where the
big banks are too big to fail. We just cannot risk having a
repetition of that financial catastrophe that we had three years
ago,” he said.
The issue of banking reform has caused tension between the
Liberal Democrats and the Conservatives, who lead the coalition.
Cable has consistently been a fiercer critic of the banks
than Conservative Finance Minister George Osborne.
Osborne is due to present the government’s formal response
to the ICB in a statement to parliament on Monday afternoon.
Conservative Mayor for London Boris Johnson warned against
excessive ‘banker-bashing’, while admitting there was “something
creepy” about bankers receiving huge bonuses while increasing
numbers of Britons face unemployment.
“Just don’t kill the goose,” he told the BBC.
