Retail banks to be ring fenced

Graham_Devon

Chancellor George Osborne is to force banks to ring-fence their retail operations from investment banking.

In a speech on Wednesday he will say banks must be set up so that their branches and public savings and loans would not be damaged if their trading arms ran into trouble.

The legal separation of the functions of big banks was recommended by the Independent Commission on Banking.

He will also announce the privatisation of Northern Rock.

The former mutual was nationalised in February 2008, in the early stages of the financial crisis.

More protection In his annual Mansion House speech, Mr Osborne will also say that banks will have to hold more capital to protect themselves against future losses than the new international minimum of 7% of their risky assets.

He will not put a figure on what minimum he will impose, but Treasury sources said that 10% would be "the right ballpark".

More:http://www.bbc.co.uk/news/business-13770746

Media are calling this one of the biggest changes in history.

Lloyds are suggesting this will put costs up for its customers, and allow banks to take larger risks, as they will be bailed out by the taxpayer.

HSBC are suggesting this is the way forward and are currently helping out with suggestions on the best way to implement this.

Not set in stone yet, but the contencious part seems to be how much capital banks will be required to hold.

purch

I think Lloyds have got this !!!! about face.

wotsthat

If this is meant to reduce risk then capital ratios should reduce.

For me the contentious part is how it will be funded. Commentators are (again) predicting the end of free banking i.e. instead of a taxpayer bailout in the future we'll pay in advance instalments instead. If HSBC are providing the government with helpful suggestions I wonder if this might be one of them?

abaxas

wotsthat wrote: »

If this is meant to reduce risk then capital ratios should reduce.

For me the contentious part is how it will be funded. Commentators are (again) predicting the end of free banking i.e. instead of a taxpayer bailout in the future we'll pay in advance instalments instead. If HSBC are providing the government with helpful suggestions I wonder if this might be one of them?

Why should banking be free?

It's a service, which if you use, you should pay for.

chewmylegoff

@wotsthat: I think the point is that capital ratios are being increased to reduce the risk that retail customers are exposed to. Higher capital constraints means lower mortgage lending though.

wotsthat

abaxas wrote: »

Why should banking be free?

It's a service, which if you use, you should pay for.

Well, selfishly, I've got used to it being free and with this being a moneysaving site I have an interest in not increasing my monthly outgoings.

Anyway think about the poor people - banking charges are likely to impact them the most. Oh and cuddly old people with fluffy white hair as well.

chewmylegoff

I don't think we'll see an end to free banking as banks will still use it as a loss leader to get you in and then charge you £50 for going 2p into your overdraft limit (all because it took them 7 days to clear a cheque from another account at their own bank).

kevin52

Why should banks charge me for keeping my money when they use it to lend out to other people or finance other parts of their business. I should be charging them for using my money.

ses6jwg

kevin52 wrote: »

Why should banks charge me for keeping my money when they use it to lend out to other people or finance other parts of their business. I should be charging them for using my money.

They're a business not a charity... and you do charge them.

They hold it securely and pay you circa 3%.

They lend it out to Joe Bloggs at 14.9%.

It's not hard to work out.

If you don't like the model keep your money in a jar in the bottom of your wardrobe.

grizzly1911

abaxas wrote: »

Why should banking be free?

It's a service, which if you use, you should pay for.

So I will withdraw all my surplus money from my current account and put it in a competitors interest bearing saving account.

If I run in debit then I already pay through the nose for short term credit.

The operator could just accept the profit they make form the free credit balances and concentrate on marketing desirable products to cross sell.

What is the net running cost for a basic bank account I wonder?

reeac

There's nothing new about this. The US introduced some such legislation in the aftermath to their big depression in the 1930s but Bush abolished it - then look what happened.