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Osborne set to announce historic banking reforms

By Tim Montgomerie
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Lord Oakeshott, TV's favourite Liberal Democrat peer and widely seen as the person who says publicly what Vince Cable cannot, is claiming today's banking reforms as a "triumph" for the Liberal Democrats:

"The Government's decision to accept the Vickers report and irrevocably break up the banks by 2015 is a triumph for a four-year campaign by Vince Cable and the Liberal Democrats."

Mr Cable took the opportunity yesterday to own the reforms in TV interviews. Osborne was happy for the Business Secretary to take the credit as he fulfils the role I attributed to him yesterday (point five) - of leading attempts to sweeten the Coalition after the fallout from the EU veto. All of the newspapers are agreed that George Osborne will tell the Commons later today that he will implement nearly all of the Vickers report but not until 2019.

Some banks have suggested Vickers will cost £12 billion to enact and will impair their ability to contribute to the UK's recovery. Others have warned that Britain's decision to act outside of any international consensus means that they will consider relocating to jurisdictions where there is less regulation. More likely is that banks simply won't expand in Britain and London's decline will be relative over time. This is certainly what worries the Mayor of London. On BBC television yesterday he warned the Coalition not to "kill the goose" that provides so much revenue for the Treasury. A new analysis by PricewaterhouseCoopers suggests that the financial services sector contributed £63 billion in tax revenues last year - an 18% increase on previous years. Even Boris, though, is aware of the politics that is driving politicians to this reforming moment. He continued:

"There's no doubt that there's something creepy about the huge bonuses that bankers are still continuing to receive in spite of the fact that they were effectively bailed out by the taxpayer. We all want to see them doing more for society."

The main Vickers changes are summarised in The Independent:
  • A ring-fencing of a bank's high street operations from its riskier investment banking (often called casino banking).
  • The retail arm should have capital equal to 20% of assets - a much higher requirement than in other nations.
  • Ordinary savers will take priority over all other creditors in the event of a bank's collapse.
  • A "redirection service" will be introduced to ensure customers can easily switch between banks. [Andrea Leadsom MP has proposed that people's bank account number should be able to follow them in the same way they take their mobile phone number with them when switch suppliers].

What is then important for the future of the UK financial services sector is that there is no further complications to regulatory or tax systems. Banks and other FIs won't expand in London if we get a reputation for being an inconsistent, even capricious, regulator. The new regime needs to be put in place and then stability should be the goal.


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