UK Chancellor: More measures needed to monitor banks

British Chancellor George Osborne indicated today that he wants a professional standards organisation set up to keep British banking behaviour in check.

UK Chancellor: More measures needed to monitor banks

British Chancellor George Osborne indicated today that he wants a professional standards organisation set up to keep British banking behaviour in check.

Mr Osborne defended the British government's banking reforms, but admitted more needed to be done to monitor the industry and suggested replicating systems used in teaching and medicine to keep standards high.

Appearing before the Parliamentary Commission on Banking Standards, Mr Osborne urged MPs not to unpick the government's "ground-breaking legislation", influenced by proposals drawn up by John Vickers.

Vickers and his colleagues on the Independent Commission on Banking last year recommended that UK banks ring-fence their high street or retail arms from high-risk investment divisions.

Mr Osborne previously said the reforms would be fully implemented by 2019.

He said today: "I would be very wary of unpicking a consensus that has been arrived at. We have spent two years getting to this point."

He added: "I would point out this is one part of the answer but I think it is the right structural change.

"It's not the only thing that needs to change and I hope this Commission would look at other issues, like the standards we expect of the profession and how, for example in the medical profession and the teaching profession, we expect certain standards and those standards are administered by the profession often, but how we can create something similar in the banking industry."

Mr Osborne warned the Commission of the consequences of seeking to rewrite the Financial Services (Banking Reform) Bill so close to its passage through Parliament.

"You will be unpicking of a consensus that has been established over the last two years," said the Chancellor. "You will be unpicking the work that John Vickers and his commissioners did. That work has been accepted, as far as I'm aware, by all the major political parties. We are now on the verge of getting on with it.

"If you come back and tell me 'This entire approach is wrong, we should have a completely different approach', you are well within your rights but the consequences of that will be either you will carry the day, in which case we will have start all over again with a new piece of legislation, or you won't carry the day."

Commission members bridled at the suggestion that Mr Osborne was seeking to limit their inquiry.

Labour MP Pat McFadden told the Chancellor: "If you are worrying about the freedom and powers of the Commission, perhaps you should have thought about that before establishing it...

"If you were sitting on this side of the table, you wouldn't take too kindly to a Chancellor saying 'I want you to look at that, but not to look at that'."

Commission chairman Andrew Tyrie said the members did not find it "very convincing to be told that we should be wary of unpicking a consensus".

"Just because something has achieved a consensus does not necessarily mean that it is right. It is our job to take a look at it," said Mr Tyrie.

Mr Osborne assured the hearing that he was "very supportive" of the Commission's work, but said he did not see it as the best use of their inquiry to become involved in pre-legislative scrutiny of his Bill, which was already being looked at by three parliamentary committees.

Mr McFadden raised concerns that regulators may find it impossible to enforce the ring-fence envisaged by the legislation between the High Street and "casino" arms of big banks, because the details of how the ring-fence will work are not spelled out in the Bill itself.

But Mr Osborne said the details of how high and how impermeable the ring-fence should be - including measures to separate the different arms' governance, risk management, remuneration structures, human resources, capital and liquidity - will be included in secondary legislation, to be published by the time the Bill reaches the committee stage in the House of Commons.

This would give future chancellors flexibility to adapt the ring-fence to suit developing circumstances, he said, adding: "If we prescribe all of these things in detail in primary legislation, I have no doubt that in 10 to 15 years' time, some clever legal firm will have found some way to get round it."

But Mr McFadden said: "We have a problem which has been put to us by regulators... They said they are not sure they have a mandate to ensure this degree of separation. What is your response to the regulators' fear that they don't have the mandate to put this into practice because it is not in the Bill?"

Mr Osborne insisted that the regulators will have the necessary mandate.

But Mr Tyrie said the Commission was not happy that details of the scheme were still not known.

He told Mr Osborne and Financial Treasury to the Secretary Greg Clark: "We want more than reassurance, we want more than a blank sheet. We want more than we are getting now.

"You are both honourable men and we are grateful for your assurances, but we are hopeful that we can rely on more than those before we have done with this process."

Mr Osborne said the primary purpose of the legislation was to ensure that, in a future crisis, a Chancellor is able to allow a bank to fail while protecting consumers, rather than being forced to bail it out, as his predecessor Alistair Darling was because of the "inadequate" legislation in place at the time of the 2007-8 banking crash.

"Ultimately, what this is all about is so that the person doing my job - hopefully not on my watch - when faced at midnight with that decision 'Do you let this very large bank go bust?' has enough confidence to say 'I think we can let it go because the banking Bill has provided me with enough reassurance that we can continue to provide core services, that people can go to cashpoints and get their money out'," said Mr Osborne.

"My predecessor, when he was faced with that decision, felt he was not confident that people would be able to get their money out of the cashpoint in the morning.

"If, at the end of all this, the person doing my job is still not confident that people can get their cash out of the cashpoint even if they let the institution fail, then I think we as a Parliament will have failed."

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