Chancellor confirms plans to split banksGovernment delivers structural reforms White Paper

15 June 2012

Banking reforms

Banks will be forced to separate their retail and investment activities

Which? has welcomed the government's White Paper on banking reforms that include protecting bank's retail activities from riskier investment activities but also called for decisive action to follow.

The government published its White Paper, outlining a series of banking reform proposals, primarily to protect the interests of taxpayers in the event of a future financial crisis and bank failures.

The ring fencing of retail and investment banking activities is the main component of the reforms but banks will also be required to have a leverage ratio of 3%, which means they must hold that proportion of their balance sheet in reserve in case of emergencies. 

There have been calls for that amount to be higher than 3%, although the government noted that this figure is in line with international standards.

Building societies not included in banking reforms

Building societies are not included in the new ring-fencing legislation, which will be implemented by bank's board members, two-thirds of which must be independent board members.

High-net worth individuals will still be able to deposit their money with non ring-fenced banks and not be covered by the Financial Services Compensation Scheme. This would apply for deposits between £250,000 and £750,000.

Banking reforms to aid consumers

The reforms, based on the Independent Commission on Banking report, delivered by Sir John Vickers in September 2011, also aim to encourage increased competition and transparency in banking to deliver a better deal for consumers.

Speaking to Parliament, Mark Hoban, Financial Secretary to the Treasury, said: 'Our proposals are ambitious in scale, but balanced in impact.  They promote financial stability while supporting sustainable growth and the role of the UK as the world's leading international financial centre.'

Prompted by calls from Which?, the government said the Financial Conduct Authority would take a 'proactive approach to consumer protection and will have a clear focus on the transparency of information that is available to consumers of financial services.'

Government must act decisively

Richard Lloyd, Which? executive director, said: 'We welcome today's Banking Reform White Paper. Plans to ring-fence high street banking from riskier investment banking is a major step towards restoring consumer confidence and transforming the culture of banking.  Never again should consumers have to foot the bill for a banking bailout that last time cost every man, woman and child £2,000.

'The Government must ensure that the competition recommendations of the Vickers' Report are fully enacted and seize this opportunity to increase competition and choice on the high street and boost ailing consumer confidence. Without decisive action, consumers will continue to pay the price for a lack of competition.'

Which? launched the Watchdog not Lapdog campaign at the start of 2012 calling for a strong, open and proactive financial regulator in preparation for the new financial watchdog coming into action in the form of the Financial Conduct Authority (FCA).

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