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New UK Law Threatens Bank Break Ups - Finance Minister Osborne

posted 4 Feb 2013, 06:59 by Mpelembe   [ updated 4 Feb 2013, 07:00 ]

Britain's finance minister announces new legislation to ring-fence banking retail operations and threatens to dismantle banks which flout the rules.

BOURNEMOUTH, ENGLAND, UK (FEBRUARY 13, 2013) (UK POOL) -  British banks which fail to guard their day-to-day banking from risky investment activities will face being dismantled, finance minister George Osborne said on Monday (February 4).

Britain is shaking up its system of bank regulation following the 2008 financial crisis, when the government poured 65 billion pounds ($102 billion) of taxpayers' money into rescues of Royal Bank of Scotland and Lloyds Banking Group.

Banks were already expected to have to "ring-fence" activities such as standard bank accounts and payments from riskier investment banking, something which will hit major players such as Barclays, HSBC and RBS.

But Osborne said he is prepared to go further.

"If a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether - full separation, not just a ring-fence. In the jargon, we will 'electrify the ring fence'," said Osborne, who made his speech at U.S. investment bank J.P. Morgan's offices in the southern English city Bournemouth.

The break up of banks which fail to keep to the rules was demanded by lawmakers who reviewed government plans late last year.

Under the new rules, the Bank of England will be responsible for monitoring whether banks ensure that risks taken by their investment banking arms do not endanger their retail sides.

If the central bank finds a breach, the government will make the final politically-sensitive decision on whether to impose a "nuclear option" of forcing banks to sell one of the two arms.

Legislation will go to parliament later on Monday and Osborne insists his reforms strike the right balance between responding to public anger and avoiding a populist overreaction.

"Any bunch of politicians can bash the banks ... but what good would that do our country? The jobs, the investment, the banking system we all need would go with it," he added.