Britain has announced plans to separate the retail and investment arms of its banks to prevent a repeat of the financial crisis that triggered massive state bailouts.
Backing the recommendations of the government-appointed Independent Commission on Banking (ICB), the Finance Minister, Mr George Osborne, also ordered Britain’s biggest banks to substantially increase their capital buffers.
“While a European and international regulatory response to the crisis is important, we cannot rely on this response to make our banking system safe,” the Chancellor of the Exchequer Osborne told Parliament.
“The Government will separate retail and investment banking through a ring fence... to protect the British economy, protect British taxpayers and make sure nothing is too big to fail.”
Legislation on ring fencing will be completed by the end of the current parliament in May 2015, while banks will be expected to comply “as soon as... possible thereafter,” said Mr Osborne.
The ICB — chaired by former Bank of England chief economist, Mr John Vickers — issued a report in September that recommended a series of measures to protect retail operations by 2019.
The radical overhaul is an attempt to avoid a repeat of the massive state bailouts of lenders, including Royal Bank of Scotland, sparked by the 2008 global financial crisis.
The sector overhaul is to be pushed through despite an expensive and intensive lobbying effort on the part of lenders who say the changes will hinder their business.