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Another financial crisis could break Britain, warns David Davis as he unveils comprehensive bank reforms package

Screen shot 2010-06-13 at 09.20.35David Davis (the grassroots' favourite right-winger) was on Andrew Marr this morning to discuss the cross-party 'Future of Banking Commission' which he chaired and which has just reported.

Describing the Commission as 'coalition politics before the Coalition' he issued a grim warning that another failure of the banks would "break the country". He continued:

"In Britain, banking sector assets are five times the size of the GDP, a ratio greater than the USA, Canada or the Eurozone. Getting it right is more important here than anywhere else because the next crisis may be bigger than the British economy can afford."

The report has added credibility because Vince Cable - now Business Secretary - sat on the Commission and has signed up to the thirty-nine recommendations. The leading Labour member was John McFall, until recently Chairman of the Treasury Select Committee, and who proposed establishment of the Commission. Numerous consumer, banking and regulatory representatives gave evidence.

Key recommendations:

  • Regulation should have the objective of increasing competition among banks.
  • Banks should draw up "living wills" that would make it clear that retail customers would at the front of the queue for help in the event of an institution's failure.
  • Ending the mixture of all types of trading with corporate and investment advice.
  • The separation of 'safe' retail activities and riskier 'investment banking'.
  • The existing £50,000 depositor guarantee should cover multiple deposits within the same bank if they are left with different 'brands'. For example a person with deposits with Abbey and Alliance & Leicester - two institutions owned by Santander - currently would only receive cover for a maximum of £50,000. Under the commission's recommendations deposits under both brands would be covered.
  • 'Safe haven' accounts should be introduced where full refunds are possible but the returns are meagre.
  • The establishment of a professional standards body - modelled on bodies like the General Medical Council and Legal Services Board - that would establish ethical and professional standards for bankers. The body would train bankers in these standards and investigate failures to uphold them.
  • Remuneration of bankers should be proportionate to longer-term measures of performance. The report suggests share value over a decade, for example, and also customer satisfaction and complaint levels.
  • Frontline staff should no longer receive commission for sales.

Mr Davis told Andrew Marr that many of the recommendations would only really work if part of an international agreement that included the USA, in particular.

Screen shot 2010-06-13 at 09.55.41 Download a PDF of the full Which? Commission report.

Tim Montgomerie

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