The Banking Reform Bill.

by Mark Johnston

The Banking Reform Bill.

According to many financial commentators the structure of the UK banking sector needs fundamental change, mainly in order to make banks more resilient to shocks and easier to fix when they get into difficulties and also to reduce the severity of future financial crises.

The banking system was saved from collapse by billions of pounds of taxpayers’ money and therefore people wanted to see bosses held to account and a system introduced which would ensure this could not happen again.

bankofenglandWhich? says the government must ensure consumers are sufficiently protected from a recurrence of the banking collapse that led to a costly public bailout.

Mark Carney, the Bank of England governor, has warned that “Politicians and regulators across the world need to step up efforts to protect their countries against the threat of another financial crisis.”

In light of this the government drew up the banking reform bill.

The Banking Reform Bill will deliver the most significant reform of the UK banking sector in a generation. The proposals are largely based on the work of the Independent Commission on Banking (ICB).

The banking reform bill is intended to make sure that when banks make losses, retail customers are not excessively affected and taxpayers’ money is not used to bail banks out.  It will require UK banks to separate everyday retail banking activities from their investment banking activities by introducing a ring-fence

The Banking Reform Bill will not only see savers’ deposits safeguarded under the Financial Services Compensation Scheme preference if a bank enters insolvency but also enforce rules to make it easier for consumers to switch bank accounts.

Sylvia Waycot of Moneyfacts.co.uk, a comparison website, said “the Banking Reform Bill would ‘please the scandal weary consumer and at last allows some hope of repair to the damaged reputation of banking as a whole.”

In June 2010, the chancellor announced that banks operating in the UK would be hit with a levy, an annual tax on their balance sheets. The government also hoped it would discourage banks from relying on risky forms of borrowing, which were blamed for making the financial crisis much more dangerous.

However, Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards (PCBS), said that “legislation presented to parliament recently “so weak as to be virtually useless”.

The Chancellor George Osborne added: “Where legislative changes are required we will amend the Banking Reform Bill which is currently before Parliament.”

Insiders have therefore stated that there was a marked difference to the Government’s initial welcome of proposals to give regulators the power to break up banks if they breached the division between retail and investment banking operations and the actual amendment put before MPs.

A spokesman for Barclays also said that the report “contained many sound proposals which, when implemented, will help restore trust in the industry”.

Once finally agreed the reform bill is due to come into force in early 2014 and then consumers will see if the reform will indeed make any difference!

 

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