…said George Osborne in a speech to staff at JP Morgan in Bournemouth yesterday. According to the Chancellor, the reset button comprises four main elements:
- The transfer of responsibility for banking supervision from the FSA back to the Bank of England, which will have the “power to call time before the party gets out of control”;
- The ringfencing of retail banking from investment banking;
- Changing the culture and ethics of the banking industry; and
- Giving customers more choice in their receipt of banking services.
On the subject of ringfencing of retail banking, Mr Osborne confirmed that the Banking Reform Bill was published yesterday. The bill is based on the recommendations of the Vickers Report and will require the creation of a ringfence around the retail arms of banks, enabling essential operations to continue in the event that the whole bank fails. If a bank flouts the rules, the Bank of England and the Treasury will have the power to break it up altogether. Mr Osborne expects the bill to be passed into law this time next year. In addition, the Chancellor announced that:
- A high street bank will be required to have different bosses from its investment bank;
- A high street bank will manage its own risks, but not the risks of its investment bank; and
- Investment banks will not be allowed to use retail savings in order to fund “risky investments”.
On the subject of increased choice, the Chancellor announced that the Government would bring forward detailed proposals to open up payment systems, ensuring that new players in the market can access these systems in a “fair and transparent way”. The implication is that responsibility for supervision of payment systems will be taken away from the Payments Council, a bank-led body.