George Osborne warns banks: change or we'll break you up

Feb 4, 2013

Chancellor wants an 'electrified' ring-fence but senior bankers warn it will hit lending

Andrew Yates

CHANCELLOR George Osborne is to warn banks they will be broken up if they flout new rules ordering them to "ring-fence" their high street operations from their risky investment divisions. He will also tell them that the British taxpayer will not bail them out if they fail again.

Osborne's speech, to be made at JP Morgan's offices in Bournemouth today, comes as the Treasury prepares to publish the Banking Reform Bill.

Although Osborne had previously warned against "unpicking the consensus" on structural reform of banks, he is now reported to have accepted the recommendation of the Parliamentary Banking Commission, led by Andrew Tyrie MP, that high street customer banking and "casino" investment banking must be separated. And if the banks refuse to cooperate, then they will be forced to so so under law.

In his speech, Osborne is set to describe 2013 as the year we "re-set our banking system" and acknowledge the anger felt in the wake of the Libor scandal.

However he is expected to caution against "populist" banker bashing, asking: "What good would that do our country? The jobs, the investment, the banking system we all need would go with it."

The Chancellor will also announce reforms to hand bank customers the right to move their accounts to a rival branch within one week, and to speed up transfers of funds between accounts held at different branches, The Independent reports.

British Bankers' Association chief executive Anthony Browne said Osborne's plan to "electrify" the ring-fence around high street banking could reduce lending to business as it would create "uncertainty for investors, making it more difficult for banks to raise capital".

One senior banker told the Financial Times that the government was allowing the Bank of England to break up banks for "political expediency". But Shadow Treasury minister Chris Leslie welcomed the move, saying an "electrified" ring-fence was a "step in the right direction".

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At last, he has decided to 'man up' and stand firm. Very good news indeed.

I think all banks should be nationalised, let the government use the money in them to benefit the society and this would (I would hope!!) also change the banks's focus from making money to helping the economy/society.