New proposals to ensure that UK taxpayers no longer have to
pay for bank failures. The Independent Commission on Banking
(ICB) recommends that banks ring-fence retail and investment
divisions to separate them from riskier investment decisions.
ICB stated that banks shouldset aside more cash in case of
unforeseen losses and future financial crises.
British Chancellor George Osborne stated the the UK should
go beyound the new international Basel rules agreed upon
in the wake of the credit crisis by the Basel Committee on
Banking Supervision, a committe of 10 central banks. He
stated that the balance sheet of the UK banking system is
close to 500% of UK GDP compare to just over 100% of the
US and 300% of Germany.
The report said that some of the objections to ring-fence
would be to isolate those banking activities where continuous
provision of service is vital to the economy and to the
bank's customers.
In order to cushion banksin the event of financial crisis,
the new rules mean that large UK retail banks would have
to have equity capial of at least 10% of risk-weighted
assets. The retail and other activities of large UK
banking groups would both have a primay loss-absorbing
capacity of at least 17-20 percent equity. The commission
believes that this measure would not threaten UK bank
competitiveness.
Sheila McKinney
