UK government threatens to break up banks

British banks that fail to separate their retail banking from their riskier investment banking arms may be forcibly dismantled, UK chancellor George Osborne will say later today.

The new rules will make the Bank of England responsible for monitoring banks, ensuring day-to day banking and investment banking remain separate.

The plans come as part of a banking regulation shake-up following 2008, where £65bn of taxpayers money was needed to rescue UK banking groups RBS and Lloyds.

Banks are already required to have ‘ring-fences’ in place that safeguard their retail banking arms from the actions of their investment bank, however the ehancellor is threatening to break up banks that fail to meet the requirements, Reuters reports.

“If a bank flouts the rules, the regulator and the [UK] Treasury will have the power to break it up altogether – full separation, not just a ring-fence,” Osborne will say. “In the jargon, we will ‘electrify the ring fence’.”

Legislation will go to the UK parliament later on Monday, and in his speech Osborne is also expected to detail new rules on limits to banks’ leverage.

Under the most recent plans, leverage was to be set at 33 times banks’ capital, weaker than an original proposal for a maximum of 25 times.

“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system. The anger people feel is very real. Let’s turn that anger from a force of destruction into a force for change,” he will say.


This article was first published on Investment Week

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