MPs agree UK banks should be ringfenced

Business banking news review: week ending 27 Dec 2012

Large numbers of MPs have come together in support of separating retail banks from their investment banking counterparts as a safeguarding measure.

It was revealed this week in an Ipsos Mori poll that more than two out of every three of the 93 MPs polled were in agreement about separating investment banks from their retail banking branches in order to safeguard the contents or ordinary customers savings account. Labour MPs were quite keen to see the distinction be made with 60 per cent of them indicating their desire to see investment banks ‘ringfenced,’ while their Tory counterparts were even more interested in seeing it happen, what with a total of 66 per cent of Conservative MPs were in favour of the move.

The new research data will doubtlessly increase pressure placed upon Chancellor George Osborne to place more teeth in the ringfence proposals that are slated to be bought forward in he New Year. The proposals, which grew out of Sir John Vickers’ recommendations, would see high street retail banks be required to hold higher levels of working capital than just a financial services institution that exclusively deals in investment banking in order to protect consumers.

Meanwhile, if these proposed changes prove to have no effect, there are already plans to urge the chancellor to arrange for banking regulators the authority to actually break up individual banking institutions. The Banking Standards commission went so far to suggest ‘electrifying’ the ringfence in an effort to discourage banks from finding loopholes and gaming the rules – something that the financial service industry will waste no time doing based on historical examples such as he Libor fixing scandal, said Conservative MP and commission chair Andrew Tyrie.

The Ipsos Mori poll – and its results – will most likely encourage many MPs from many parties to support separating the UK banking industry through ringfencing. Liberal Democrats will most likely feel vindicated in pushing so hard to launch further talks on the Vickers recommendations, with business secretary Vince Cable and Lib Dem leader Nick Clegg particularly vociferous in calling for the chancellor to fall in line with ringfencing, though Mr Osborne does not currently support forcing retail banks to separate from their investment banking arms.

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