New law to break up errant banks



Reuters

Published — Tuesday 5 February 2013

Last update 5 February 2013 1:59 am

| نسخة PDF Print News | A A

BOURNEMOUTH, England: British banks that fail to shield their day-to-day banking from risky investment activities could be broken up, Chancellor of the Exchequer George Osborne said yesterday, bowing to political pressure to come down harder on reckless lenders.
European countries are retooling their financial systems to prevent a repeat of the 2008 financial crash, trying to strike a balance between popular calls for banks to be reined in and warnings that too tight a leash will choke off recovery.
With Britain's banks buffeted by scandal on an almost daily basis and part-nationalized Royal Bank of Scotland (RBS) set to be fined up to 500 million pounds this week for interest rate rigging, Osborne decided to “electrify” the ring-fence around banks' core retail activities with the threat of break-up.
“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system. The anger people feel is very real,” Osborne said in a speech ahead of the publication of the banking reform legislation.
“Let's turn that anger from a force of destruction into a force for change,” he said, speaking at the offices of US bank JP Morgan in Bournemouth, southern England.
London's structural reforms go further than France and Germany, which, like the United States, are only demanding that banks separate out their proprietary trading, where they invest the banks' own funds, from the rest of their businesses.
The German government is, however, considering a new law that would see executives jailed for up to five years if they are found guilty of reckless behavior that jeopardizes their bank.
“We want to send a signal to Europe with this,” a senior government source in Berlin said, adding that EU moves in this direction “have not been fast enough”.
Osborne said Britain could ban directors of failed banks from working in the industry.
In the absence of international agreement, national regulators are increasingly pursing their own banking rules, to the dismay of industry insiders.
“We should not create unnecessary obstacles to pan-European rules with a zig-zag approach. A crisis does not stop at the national border. We need a coordinated approach in this area,” said Michael Kemmer, managing director of the German banking association.
All the major British banks, including Barclays, HSBC and RBS, will be affected by the UK legislation, and the industry has warned it will put them at a disadvantage against continental rivals such as Deutsche Bank and BNP Paribas.
“This will create uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses,” the British Bankers' Association said in a statement.
But a source close to one of Britain's biggest lenders was more sanguine, saying that with banks already under intense scrutiny, Osborne's decision was a longer term move designed to prevent banks letting standards drop when attention is less focused on the industry.
Fitch ratings agency said the legislation could improve the credit profile of Britain's retail banks.
Shares in UK banks were lower on Monday but still outperformed the benchmark Stoxx Europe 600 Banks Index, which fell nearly 2 percent due to rising sovereign bond yields in Southern Europe.
“It's probable that today's move represents the market's need for a bit of a breather after a spectacular run in January rather than any long-term concern over the ability of the banks to operate profitably under the ring-fencing rules,” said Matt Basi, head sales trader at CMC Markets.
Under the new rules, the Bank of England will monitor whether banks' investment banking arms, which trade complex securities, are endangering their retail operations.
If the central bank finds a breach, the government will decide whether to flick the switch on the electric fence, forcing the bank to sell one of the two arms.
“Banks require discouragement from gaming the rules. They will always try to do so unless strong disincentives are put in place,” said Andrew Tyrie, the chairman of the parliamentary commission that had demanded the break-up threat.
Part nationalized RBS is expected to be fined this week for its role in a global interest-rate-fixing scandal, and Osborne repeated his call for the settlement with US and UK regulators to be paid out of bankers' bonuses, saying it would cause “enormous public anger” if the taxpayer footed the bill.
The UK has spent over $100 billion propping up its over-leveraged banking system, much of it poured into RBS.
Asked whether there should be resignations at RBS as a result of the bank's imminent fine, Osborne said it was “quite well known that RBS are thinking about changes” amongst the investment bank's senior management.

“It is right that those who are responsible — not just those who are directly responsible, but also those who were dong the supervising — must also bear a level of responsibility,” he said.
RBS is expected to part company with the head of its investment bank, John Hourican, when the settlement is announced later this week.

What's happening around Saudi Arabia

RIYADH: The ongoing Janadriyah national heritage and culture festival welcomed German government representatives as the guests of honor, marking a new era in Saudi-German ties.Detlef Daues, chief executive officer of a German business group, said: “I...
RIYADH: Highlighting the importance of caring, preservation and better maintenance of mosques located along highways in the Kingdom, the Saudi Commission for Tourism and National Heritage (SCTNH) and the Masajedna Foundation will honor excellence in...
ABHA: Women graduates in Asir say they are looking for private companies to hire them for online jobs which can be done at home.They asked businessmen to open new production lines for women in both factories and banks.The women said that this would c...
ABHA: Deviant groups have attempted to attract Saudi women to carry out terrorist operations by various means and in sinister ways.Many women have been found to have been recruited by terrorist groups inside and outside the Kingdom.Islamic scholar Mo...
RIYADH: Makkah Gov. Prince Khaled Al-Faisal has written a patriotic poem to inspire Saudi troops at the southern borders.Titled, “I wish to be with you,” the poem infuses encouragement in the hearts and minds of troops guarding the borders in Najran,...
RIYADH: A delegation of senior officials from King Abdullah University for Science and Technology (KAUST) visited the King Abdullah City for Atomic and Renewable Energy (KACARE) to discuss cooperation between the two institutions on sustainable energ...
RIYADH: The Office of the Education Department in eastern Taif has launched a program called “Fatin” which aims to protect students from intellectual threats around them.Fahhad Al-Zuibi, director at the Office for Education said, “The program aims to...
RIYADH: The Taif theater group won two awards when it participated recently in the ninth edition of a theatrical festival in Bahrain. The group, which represented the Kingdom in the theatrical festival, mounted a play production titled “Out of Contro...
RIYADH: Riyadh Gov. Prince Faisal bin Bandar inaugurated the first festival for families with handicapped members at the King Fahd Cultural Center (KFCC) on Wednesday evening. The festival, which will last for three days, features a bazaar that displ...
RIYADH: A separate department to provide enhanced security to the Kingdom’s schools will be set up in all educational regions, Education Minister Ahmad Mohamed Al-Issa announced on Wednesday.Under the new directive, such departments will be establish...
RIYADH: Under a new ministerial ruling, payment of the minimum capital for industrial development is to be abolished.To support industrial development, the Ministry of Commerce and Industry issued a ministerial decree eliminating the requirement of t...
JEDDAH: The father of a student at Imam Nafie Primary School in Taif’s Qumariya neighborhood is upset because the teacher who had hit his son in the face has gone unpunished.Fahad Muhaimeed Al-Nufaei was quoted as saying to local media that the teach...
JEDDAH: While the Ministry of Education sees privatization of education as a positive development, there are investors who express there cautious reluctance by saying there would be intense competition in the field and the returns might be less than...
JEDDAH: The University of Birmingham will welcome over 1,000 Saudi students from across the UK to an annual conference that will showcase their potential for groundbreaking work and research innovation.As academic host for 2016, the university will w...
JEDDAH: Over a billion tons of foods in the world finds its way to garbage containers and dumps, said Ahmad bin Amer Al-Harbi, head of the Volunteerism Unit.Al-Harbi said that in the Kingdom alone, about 75,000 tons of rice is wasted annually. In add...

Stay Connected

Facebook