Bank reforms 'won't shield taxpayer from another crisis': Embarrassment for Osborne as report warns shake-up 'falls well short'
Parliamentary Commission: Plans to separate banks' risky investment arms from high street operations may not be 'adequate'Banks accused of 'culture of culpable greed'
Tougher sentences may be introduced for some financial offences
00:04 GMT, 21 December 2012
Sweeping reforms planned for Britain’s biggest banks will not be enough to protect taxpayers from another financial meltdown, a commission of MPs and peers will say today.
In an embarrassment for Chancellor George Osborne, their report will warn that his proposed shake-up ‘falls well short of what is required’.
Accusing banks of a ‘culture of culpable greed’, the Parliamentary Commission on Banking Standards will say plans to separate banks’ risky investment arms from their high street operations may not prove ‘adequate’.
In an embarrassment for Chancellor George Osborne (left), the Parliamentary Commission on Banking Standards will warn that his proposed shake-up 'falls well short of what is required'. Right, Andrew Tyrie, the Conservative MP who chairs the banking commission
It also plans to look at whether tougher sentences should be introduced for some financial offences – asking how those guilty of ‘fraudulent, duplicitous, criminal behaviour’ can ‘still be walking the streets’.
The report says the proposed ‘ring-fence’ between the lenders’ casino banking and high street operations needs to be ‘electrified’ with tougher measures, including the threat to break up the banks if they are caught ‘gaming the rules’ as they have done in the past.
The ring-fenced banks should be banned from making risky investments with their customers’ savings and deposits, the report will say.
It raises fears that politicians and regulators will ‘succumb to lobbying from banks’ and water down the ring-fence unless it is toughened up.
The damning findings put forward by the commission – which includes the next Archbishop of Canterbury Justin Welby – will require a rethink from the Chancellor.
The new proposals are published just days after Swiss banking giant UBS was fined 940m for rigging the inter-bank interest rate.
Referring to the UBS fine, Mr Tyrie said: 'The latest revelations of collusion, corruption and market-rigging beggar belief'
Mr Osborne urged the commission last month not to ‘tear up’ consensus on bank reform.
He is anxious not to dismantle the big banks partly because of the extra costs of up to 4.4billion a year they would incur from splitting into two.
But insiders last night said the Chancellor would have a ‘major credibility’ problem if he ignores calls to introduce these ‘nuclear’ powers, particularly because he was responsible for setting up the commission.
'How can those guilty of fraudulent, duplicitous and criminal behaviour still be walking the streets'
– Tory MP Andrew Tyrie
It would also put him at loggerheads with the Bank of England’s Prudential Regulatory Authority, which has backed a new law to break up errant banks and will be responsible for implementing the reforms.
The new proposals are published just days after Swiss banking giant UBS was fined 940million for rigging the inter-bank interest rate.
Referring to the UBS fine Andrew Tyrie, the Conservative MP who chairs the banking commission, said: ‘The latest revelations of collusion, corruption and market-rigging beggar belief.
'It is the clearest illustration yet that a great deal more needs to be done to restore standards in banking.
‘For the ring-fence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to. That’s why we recommend electrification.’
The commission raised the prospect of bank bosses who breach the rules facing criminal sanctions.
Mr Tyrie said: ‘We call this the orange boiler suit question. How can bankers be fined for fraudulent, duplicitous, criminal behaviour and still be walking the streets’
The Independent Commission on Banking chaired by Sir John Vickers proposed a series of reforms in its final report last September, including that lenders should be forced to ‘ring-fence’ their investment and high street operations by 2019.
It is hoped they will make it easier to sort out banks that get into trouble, without requiring a bailout from taxpayers. But they fall short of breaking up the banks entirely.
The Government has already been accused of watering down the Vickers reforms.
And today Mr Tyrie’s commission raises fears that banks will lobby politicians to wriggle out of the new rules – for example, by continuing to sell complex financial instruments to high street customers.
To counter this, the commission wants the Government to introduce a new law giving the regulator the power to break up banks if they breach the ring-fence.