British banks that fail to shield their day-to-day banking from risky investment activities could be broken up, Finance Minister George Osborne said on Monday, bowing to political pressure to come down harder on reckless lenders, Reuters reported.
European countries are retooling their financial systems to prevent a repeat of the 2008 financial crash, trying to strike a balance between popular calls for banks to be reined in and warnings that too tight a leash will choke off recovery.
With Britain’s banks buffeted by scandal on an almost daily basis and part-nationalized Royal Bank of Scotland set to be fined up to 500 million pounds this week for interest rate rigging, Osborne decided to “electrify” the ring-fence around banks’ core retail activities with the threat of break-up.
“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,” Osborne said in a speech ahead of the publication of the banking reform legislation.
“Let’s turn that anger from a force of destruction into a force for change,” he said, speaking at the offices of U.S. bank JP Morgan in Bournemouth, southern England.
London’s structural reforms go further than France and Germany, which, like the United States, are only demanding that banks separate out their proprietary trading, where they invest the banks’ own funds, from the rest of their businesses.
The German government is, however, considering a new law that would see executives jailed for up to five years if they are found guilty of reckless behaviour that jeopardises their bank.
“We want to send a signal to Europe with this,” a senior government source in Berlin said, adding that EU moves in this direction “have not been fast enough”.
Osborne said Britain could ban directors of failed banks from working in the industry.
In the absence of international agreement, national regulators are increasingly pursing their own banking rules, to the dismay of industry insiders.
“We should not create unnecessary obstacles to pan-European rules with a zigzag approach. A crisis does not stop at the national border. We need a coordinated approach in this area,” said Michael Kemmer, managing director of the German banking association.
All the major British banks, including Barclays HSBC and RBS, will be affected by the UK legislation, and the industry has warned it will put them at a disadvantage against continental rivals such as Deutsche Bank and BNP Paribas.