News In Depth
Plans to protect savers unveiled
Plans to protect savers if banks fail have been unveiled by the Government.
Financial Secretary Mark Hoban said customers' deposits would be better shielded from risky deals under a shake-up which would make clearer separations between investment and retail banks.
But shadow chancellor Ed Balls believed the revamp had been diluted.
Making a Commons statement, Mr Hoban said banks should hold more cash, making more money available to savers if an institution collapses.
He told MPs: "The deposits of individuals and their overdrafts and the deposits and overdrafts of small and medium-sized businesses will, in general, be placed in ring-fenced banks.
"To minimise the risks a ring-fenced bank is exposed to, it will be prohibited from conducting the vast majority of international wholesale and investment banking."
Mr Hoban said the 2008-9 banking crisis "exposed a great many flaws" in the system and said the reforms would mean investors "reap rewards when banks do well but take the pain" if they fail.
Launching the Treasury's White Paper following recommendations by the Independent Commission on Banking led by Sir John Vickers, Mr Hoban said: "We will ensure British banks will be resilient, stable and competitive and so attractive to investors at home and abroad."
The proposals would boost competition among banks, making it easier and faster for customers to switch accounts.
Mr Hoban added: "Our proposals are ambitious in scale, but balanced in impact.
"They promote financial stability while supporting sustainable growth and the role of the UK as the world's leading international financial centre."
But Mr Balls said: "Isn't the truth that having failed to deliver international agreement on tougher international banking standards, the Chancellor is now being forced to water down and fudge the Vickers' reforms?"
Mr Balls said: "We set three tests for Vickers, on each one the Government is failing.
"It's causing uncertainty for confidence, lending and growth, it's failing to lead reforms in the EU and it's fudging and watering down proper taxpayers' protection.
"We need a Chancellor who can do the economics, who can grip the detail or who can spend the time, somebody who's working full time on the job, somebody who at least turns up in this House and answers the questions on this vital issue."
Mr Hoban responded: "I think what we have set out today is a very clear programme of reform responding to the mistakes of the past committed by the previous government, making sure we have a stable and sustainable banking system which underpins and not undermines economic growth."
Conservative chairman of the Commons Treasury Select Committee Andrew Tyrie asked what the Government's estimate was of the "increase costs" of the proposals on small business lending.
Mr Hoban said the cost benefit analysis looked at costs of the package "as a whole" and was not broken down into particular areas.
He added the proposals were a "good package for businesses as well as ensuring stability of the economy".
Labour's David Winnick said: "Would it not have been appropriate to make at least some reference to the outright greed of those who head the banks, millions of pounds, which some of them get each year, why no such condemnation? Or is it the case that this Tory-led Government couldn't care less?"
Mr Hoban hit back, saying: "I think he should just reflect for a moment on what happened when his government was in power.
"We had a situation where bankers were able to take their bonuses in cash in the year that they were paid."
He added: "What we have done since we've come into office is have the toughest and most transparent pay regime of a major financial centre, ensured that shareholders have a stronger voice over bank pay.
"I think we are tackling that problem in a way that the previous government simply neglected and allowed to fester and contribute towards the crisis that we've seen in the banking sector."
Plaid Cymru's Treasury spokesman, Jonathan Edwards, criticised the timing of the reforms.
He said: "Isn't he concerned that delaying implementation of these reforms until 2019, as reported in the press today, will leave seven years for the so-called golden goose to hold a golden gun to the heads of ordinary working people and the real economy and ample time for the all powerful financial lobby to water down these proposals."
Labour's Sheila Gilmore said, given the continuing fall in net lending to businesses, how would the reforms stimulate that, adding: "Isn't there a risk that we go for the stability of the graveyard?"
Mr Hoban said it was important to "get the banking system right, that it is stable and promotes growth".
Tory Bill Cash asked how the Government was going to protect the City of London from EU jurisdiction and qualified majority voting.
Mr Hoban replied: "What's important is for the eurozone to move ahead in dealing with the problems it faces, and strengthening the banking regime within the eurozone, but it is also important I think for the safe future of the City to ensure the proper safeguards over the functioning of the single market."
Tory Richard Fuller also raised the issue of the current supply of credit to businesses and the immediate impact of the long-term proposals, asking what analysis had been undertaken by the Treasury of the impact.
Mr Hoban replied: "We need to make sure that we do have strong banks, but we also have the schemes in place to help sustain bank lending and to ensure there is a supply of credit to SMEs."