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Osborne backs controversial bank reform

20 December 2011

Westminster has confirmed its intention to follow the main proposals set out by Sir John Vickers’ Independent Commission on Banking (ICB), in particular the separation of investment and retail banking operations to protect depositors. Banks will also be forced to bolster their capital reserves to 10 per cent of value of their loan book, plus a further 7-10% in the form of “bail-in” bonds.

The recommendations have been fiercely opposed by the banking industry, which has warned the measures would be ineffective and that the additional costs incurred would be passed on to consumers.

Announcing his intentions to Parliament, Chancellor George Osborne said: "The Government will separate retail and investment banking through a ring-fence.

"It's important to know that this ringfence will not prevent banks from failing, but it does mean, if banks get into trouble, those elements of the banking system that are vital for families, businesses and for the whole economy can continue without resort to the taxpayer.”

Mr Osborne also had a special prescription for RBS, calling on the largely state-owned bank to further pare down its investment banking arm.

"RBS itself has made significant changes since 2008, including reducing the size of its investment bank by half,” he said. “But I believe RBS needs to go further and the management agrees. RBS will make further significant reductions in the investment bank, scaling back riskier activities that are heavy users of capital or funding.”

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