UK banks will be forced to separate everyday high-street and retail banking operations from their investment arms under the Banking Reform Bill, announced by the Chancellor George Osborne.
According to the Treasury, the reforms would ‘fundamentally change the structure of the UK banking sector, to make banks more resilient to shocks and more resolvable in the event of a failure, and reduce the severity of future financial crises.’
“The Bill will mean that taxpayers are never again on the hook when banks fail,” added financial secretary to the Treasury Greg Clark.
The Banking Reform Bill will:
introduce new legislation to separate everyday high-street and retail banking from riskier investment banking
abolish the Financial Services Authority and replace it with a new watchdog, the Financial Conduct Authority, with enhanced powers
aim to change the culture and ethics of banking to create a more open and transparent market
give depositors, protected under the Financial Services Compensation Scheme, preference if a bank enters insolvency.
Business groups broadly welcomed the measures, which include ring-fencing the deposits of individuals and businesses, but questioned whether it would create additional barriers for firms seeking credit.
Adam Marshall, director of policy at the British Chambers of Commerce, said: “The government is right to review and address the failings of the banking system. However, it must do more, particularly to address the structural gap faced by Britain’s young and fast-growing firms, many of whom will still be unable to access the resources they need even after the proposed reform of banking regulation.”
Katja Hall, chief policy director at the Confederation of British Industry, said: “Small businesses in particular should benefit from the ability to switch current accounts quickly and easily.”
Commenting on banking structures, she said: “Businesses want to be able to access the full range of banking services under one roof, so banks should press ahead with implementing the ring-fence proposals to avoid the threat of full separation.”