Government sets out bank changes
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Savers will be given greater protection if a bank fails, under government proposals that have been announced.
Financial Secretary Mark Hoban unveiled the banking reform White Paper, which follows the recommendations made by the Independent Commission on Banking.
He confirmed retail banking operations would be ring-fenced from riskier operations such as investment banking.
Shadow chancellor Ed Balls criticised the Chancellor, George Osborne, for not making the statement himself.
The ICB was set up to look at ways to make the UK banking system safer.'Wider range'
"The government will ring-fence retail deposits from the risks posed by international wholesale and investment banking. A ring-fenced bank will be economically and legally separate from the rest of the group and run by an independent board," Mr Hoban told the House of Commons.
However, the government is making an important concession to banks, who were angered at the ring-fencing proposals.
It is not utterly impossible that the UK and its huge banks could seem a bigger financial risk than the eurozone”
It is looking at broadening the range of activities allowed within ring-fenced operations to include certain hedging tools, for instance to protect against interest rate and currency fluctuations, where these are sold alongside loans to small business clients.
Banks have been accused of mis-selling exactly such products to small businesses in the past.
"We felt that it was in the interests of business to ensure there was a wider range of instruments included in the ring-fence, including derivatives," Mr Hoban said.
"These products are widely used. There is a need for them."
The British Bankers' Association had warned that the original reform proposals could hurt the banking sector, and have a knock-on effect on the overall economy.
Labour's Ed Balls said there were still questions to answer, and accused the government of watering down the ICB's proposals.
"Why is the chancellor not making the statement? Or should I say the 'part-time' chancellor? What is the chancellor running scared of?" Mr Balls said.
"Isn't the truth that having failed to deliver international agreement on tougher international banking standards, the chancellor is now being forced to water down and fudge the Vickers' reforms?"International norm
BBC business editor Robert Peston says arguably the most significant watering down of the original recommendations is a lowering of the guidance on the amount of capital banks should put aside.
End Quote Steve Davies PricewaterhouseCoopers
It won't make our banks crisis-proof”
The ICB wanted to see a significantly higher amount than under new international proposals, but our correspondent says the chancellor has decided that the UK cannot go beyond the new international norm.
Sir John Vickers, who chaired the ICB, said: "The White Paper proposals are far-reaching, but on some points - such as limits on the leverage of big banks - we believe they should go further.
"We welcome that the ICB proposals have been accepted in large part, but urge the government to resist pressure to weaken their effectiveness."
The chancellor is expected to discuss the proposed reforms in his annual Mansion House speech on Thursday evening.
In his speech, he will say: "We've got to stop problems here in the City of London spilling onto our High Streets and putting taxpayers' money at risk.
"I believe that we have found a workable way to solve what I called the 'British dilemma' - so we are proposing to protect taxpayers in a way that does not make the UK uncompetitive as a home of global banks."Higher costs
Steve Davies, lead partner of retail banking at the business services firm PricewaterhouseCoopers, told the BBC that the reforms would not prevent another banking crisis.
"It won't make our banks crisis-proof. What this does is to enable a failed bank to be properly recovered in the event of a crisis.
"It does not prevent a credit crunch and it does not stop a run on the bank."
He added that the reforms were likely to push up the cost of banking: "The cost of implementing the regulation is going to be substantial and the regulations are likely to force the banks to hold more capital back and those costs will have to be passed on."
The banking reform plans will remain open for consultation until draft legislation is set out in the autumn.
Plans for the final legislation are expected to be in place by 2015.