Government wants end to too-big-to-fail banks

LONDON Mon Mar 28, 2011 8:07am BST

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LONDON (Reuters) - The government will accept proposed reforms from a special banking commission panel if they offer taxpayers protection from the danger of banks being too big to fail, Deputy Prime Minister Nick Clegg said on Friday.

The government spent billions of pounds bailing out ailing banks including Royal Bank of Scotland (RBS.L) and Lloyds TSB (LLOY.L) and is seeking ways to restructure the industry.

"It is wholly unsustainable and unacceptable to have found ourselves in a position where we allowed one sector, the banking system, to become so big, so overleveraged, so riddled with irresponsible risk-taking that all the rest of us have now had to pick up the tab," Clegg told Reuters in an interview.

The Independent Commission on Banking, set up last year to consider a radical shake-up of the sector, publishes an interim report next month ahead of a final report in September.

Its chairman, John Vickers, has said one option could be to force banks to capitalise separately their retail and investment banking operations.

"I am going to be sympathetic to any recommendations which convince me (they) are necessary to make the banking system safe for the future and sustainable for the future," said Clegg.

"If Vickers argues a compelling case that the reforms they want to advocate are the best way to ensure that we have a safe banking system where British taxpayers don't have to continually bail out banks which are too big to fail, and that the reforms will foster a sustainable, prosperous banking system, then our assumption is going to be that we should implement those recommendations," he said.

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