UK banks should face threat of being broken up - FSA
A man is seen behind the entrance door of the offices of the Financial Services Authority (FSA) in Canary Wharf, London, November 19, 2010.
Credit: Reuters/Simon Newman
LONDON |
LONDON (Reuters) - Britain's banks should be forced to fully separate their retail arms from investment banking operations if they try to circumvent new rules designed to protect the taxpayer, a top regulator warned.
Andrew Bailey, head of banking supervision at the Financial Services Authority (FSA), said banks should face the threat of being broken up if they fail properly to comply with proposals to ring-fence retail deposits from riskier activities.
Bailey said there was a risk that banks would try to "tunnel under" any ring-fence that was set for them.
"This is an industry which is tremendously innovative at thinking of ways to dress things up to look slightly differently," Bailey told the Parliament Commission on Banking Standards.
"It's not just the banks, they are supported by a very large army of advisers, lawyers, accountants who make very good money out of this business of being creative," he added.
MPs are debating what should be allowed inside the ring-fence and Adair Turner, the FSA's chairman, said there was a case for retail banks to be allowed to sell simple derivative products to small companies, in an easing of initial proposals.
"We can see some arguments why a relaxation might be legitimate and OK provided that it is wrapped around with some limits as to the scale of this book relative to the total scale of the balance sheet," Adair Turner told the panel.
Britain's banks agreed earlier this year to compensate customers for past mis-selling of interest rate hedging products, after the financial regulator found evidence of serious failings in the way such products were sold.
Turner said banks were likely to face a "significant" bill to compensate customers. Barclays has set aside 450 million pounds to deal with the issue, the biggest of any bank so far.
The Parliamentary Commission on Banking Standards was set up to scrutinise the industry and examine proposals for reform following a raft of scandals including the rigging of interest rates.
(Reporting by Matt Scuffham and Steve Slater; Editing by David Cowell)
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For example, bad mortgage loans can be bought from the Banks by the BoE for 100p on the pound. Rather than 2-3p.
Until we understand the mechanisms by which money is created and the consequences of fractional reserve banking then it doesn’t matter what we do.
Governments and bankers love fractional reserve banking. All is good whilst we have consistent growth of GDP. Low growth is bad. No growth is very bad. Negative growth is worse. Several years of low growth or no growth is very bad.
Ever wondered why the major western economies are all having difficulties at the same time? It is almost as if we are being synchronised to fail together. We are, the mechanism is central banking.
Ever feel that politicians are lying?
Ever feel that bankers are devious greedy ne’er do wells?
Ever felt that the poor are getting poorer?
Ever felt that the rich are getting richer?
Ever think that most economists know nothing and are in fact dangerous?
There is actually a reason, fractional reserve banking and government deficit spending. Both distinct and separate but they never exist alone.
Greedy bankers and financially illiterate politicians, what could possibly go wrong!
PS Not all bankers are greedy, most are financially illiterate, as are 99.9999% of everybody else.
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