LONDON (MNI) – Chancellor of the Exchequer George Osborne gave the
green light Monday to the ringfencing of retail banking in the UK,
separating it from investment banking.

Osborne told parliament he would press ahead with implementing the
key proposals in the Vickers Report on banking reform, spearheaded by
former Bank Of England Chief Economist John Vickers. The reform of the
UK banking system will be completed in stages, with full implementation
by 2019.

The moves show the UK moving beyond Basel and EU requirements on
banking capital and regulation. Osborne said the UK banking system was,
in proportion to the whole economy, far larger than in other advanced
countries.

“While a European and international response to the (financial)
crisis is important, we cannot rely on this response alone to make our
banking system safe,” Osborne said.

The Vickers Report recommended retail banking services should be
separated from wholesale and investment banking activities via a
ringfence, that they should have bigger loss absorbing “cushions” and
that competition in the UK retail banking system should be enhanced.

Osborne pledged to implement all the key Vickers’ proposals.

“The Government will separate retail and investment banking through
a ringfence … this ringfence will not prevent banks from failing but
it will mean that if banks get into trouble those elements of the
banking system that are vital … to the whole economy can continue
without resort to the taxpayer,” he said.

The Basel III requirement states banks should hold minimum equity
capital of 7%, with a top-up for systemically important banks.

Osborne said large, ringfenced UK retail banks “will be required to
hold equity capital of 10%. There will also be a minimum requirement for
the loss absorbing capacity of big banks of at least 17%,” he said.

Foreign banks operating in the UK will only be exempt from these
rules if they can demonstrate they are not a threat to the UK taxpayer.

Banks will have to split their investment banking divisions from
their retail divisions by 2019 at latest.

Osborne said the estimated costs of the reforms was Stg3.5 billion
to Stg8 billion, but he said the costs would be outweighed by the
benefit of lowering the likelihood of a collapse in the retail banking
sector in future.

For further information contact David Robinson on 4420 7 862 7491
or e-mail: drobinson@marketnews.com.

[TOPICS: M$B$$$,M$$BE$]