By a Newsnet reporter
Conservative Chancellor George Osborne has announced a set of reforms to the banking system, due to be implemented in full by 2019. The changes are designed to prevent a reccurence of the financial crash of 2008 which brought about the current economic crisis.
The reforms adopted by the Chancellor are broadly in line with the recommendations of the ‘Vickers Report’. The report was issued in September by an independent commission headed by Sir John Vickers which was set up to investigate banking practices.
The report recommended safeguards against the so called ‘cowboy capitalism’ which has resulted in the need for billions of pounds of public cash in order to prevent financial meltdown.
The main plank of the reforms will see the creation of ring-fencing around high street banks in order to insulate them from the risks run by ‘casino’ operations within the same business. Amongst a raft of other measures, banks will also be required to hold a higher level of equity capital than they do at present, to act as a greater cushion against possible future losses.
Speaking to MPs in the House of Commons on Monday, Mr Osborne also revealed that the largely state owned Royal Bank of Scotland has been ordered to cut back on the investment branch of its business to concentrate on becoming what Mr Osborne described as a “stronger, safer bank, able to maintain lending to businesses and consumers”.
Mr Osborne added that he expected these changes to be in place by September 2013.
Responding to the Chancellor’s statement, SNP Treasury spokesperson Stewart Hosie MP welcomed implementation of the proposals, but called for assurances that their introduction does not undermine lending to small and medium businesses or put jobs in Scotland at risk.
Mr Hosie asked the Chancellor:
“… what he meant by RBS will make further significant reductions in the investment bank. Can he put a cash figure on that? How much deleveraging does he see? What does he envisage being sold off? In the UK or is it overseas? We need certainty in terms of RBS’s future, and can we have some detail today … “
Mr Osborne replied:
“I know that RBS is a very important employer in Scotland and a very important part of the Scottish economy. What we want to see is the Royal bank of Scotland focussed on its UK businesses on UK corporate and individual customers and that its investment bank should support that service it offers. The RBS management have also reached that conclusion and shall be setting out further details in the coming months about how they are going to do that.”
Speaking afterwards, Mr Hosie – a Member of the Treasury Select Committee – said:
“It is right that the Vickers’ proposals will be delivered in full and, I hope, in a way which protects lending for small businesses, protects jobs and makes the financial system safer.
“Successive UK Governments have already been slow to deliver fundamental change. Former Labour Chancellor Alistair Darling claimed resolving the crisis and reforming the system simultaneously was too complex. So we welcome the statement that the Vickers commission recommendations will be implemented.
“While lending to small businesses and consumers was not within the scope of the Commission’s work we do need assurances that, in the course of implementation, these proposals do nothing to undermine that lending which is so vital to tackling the economic downturn.
“The SNP strongly backs the view that the banks should be made more resilient by increasing loss absorbency and introducing ring fencing but we are pleased the Commission did not recommend the total break up of universal banks. We do not believe the ICB report makes that inevitable. In this respect, thousands of Scots at home and overseas are now replying on the UK Government to protect head office and wider sector jobs as the consequences of these legislative changes take shape.
“Worryingly though for RBS, the Chancellor has said, ‘RBS will make further significant reductions in the investment bank.’ It is vital that George Osborne now answers precisely what this means – for jobs and for the independence of the Bank.
“He was unable to say what level of reduction he expected, what de-leveraging he anticipated and what parts of RBS might be sold off. This uncertainty is damaging for RBS and all of those who work for it.”