Britain to split banks to protect economy
Britain, on Tuesday, announced plans to separate the retail and investment arms of its banks to prevent a repeat of the financial crisis that triggered massive state bailouts.
Backing the recommendations of the government-appointed Independent Commission on Banking (ICB), finance minister George Osborne also ordered Britain’s biggest banks to substantially increase their capital buffers.
“The government will separate retail and investment banking through a ring fence, to protect the British economy, protect British taxpayers and make sure nothing is too big to fail,” Exchequer Osborne told parliament.
Legislation on ring fencing will be completed by the end of the current parliament in May 2015, while banks will be expected to comply “as soon as possible thereafter,” said Osborne. The radical overhaul is an attempt to avoid a repeat of the massive state bailouts of lenders, including Royal Bank of Scotland, sparked by the 2008 global financial crisis.
Osborne on Tuesday estimated that the changes would cost Britain’s banking sector between 3.5 billion pound and 8 billion pound a year.
Large ring-fenced banks will be required to hold equity capital equal to “at least 10 per cent” of their risk assets, and big banks “at least 17 per cent” by 2019. The ICB had called for a loss-absorbing capacity of between 17 and 20 per cent. British banks are also being asked to increase their capital.
