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Chancellor wins on banking regulations

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by Jan Harris
Chancellor wins on banking regulations

Chancellor of the Exchequer George Osborne has secured a key agreement allowing the UK government to regulate its banks more strictly than other EU member states.

The agreement was secured in Brussels between European Union finance ministers.

It allows the UK to ring-fence retail banking operations from riskier investment banking operations in order to protect them in the event of another financial crisis.

This was a key element in recommendations made by the Independent Commission on Banking in 2011.

At the meeting, Mr Osborne softened his position on a proposed EU law which would introduce more stringent capital standards for banks.

The law has been a sticking point between Britain and the rest of the EU.

Mr Osborne dropped his objections in the face of ongoing difficulties in the eurozone, and expressed his support for the proposal.

This will allow regulations to be introduced next year requiring banks in EU states to hold more capital to cover potential losses on loans.

“We are reaching a point where we have got to make a decision to see the euro zone stand behind their currency,” Mr Osborne said.

Mr Osborne secured the right for Britain to increase the minimum capital buffer held by banks from 7 per cent to 10 per cent; however the UK will require permission from Brussels to raise it above this level.

Meanwhile, financial experts have warned MPs that selling the government’s stake in RBS and Lloyds could take years.

The government acquired shares in the two banks as part of its rescue package during the banking crisis.

Experts, including fund managers and investment bankers, told a committee of MPs that public anger towards banks was keeping the share price low and that breaking up RBS could reduce the amount taxpayers receive for their stake in the bank.

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News posted: May 16, 2012

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