January 22, 2010 / 9:27 AM / 10 years ago

Tories warm to Obama's bank plan

LONDON (Reuters) - Labour and the Conservatives Friday threw their support behind U.S. President Obama’s plans to stop banks taking on too much risk, but only the Tories indicated it might copy them.

Shadow chancellor George Osborne speaks at a Reuters Newsmaker event in London October 26, 2009. REUTERS/Kevin Coombs

The Obama proposals, which need congressional approval, would stop banks investing in hedge funds or private equity funds and bar institutions from proprietary trading operations, unrelated to customer needs, for their own profit.

A new cap on the size of banks is also on the cards.

“It’s directionally something the prime minister is very comfortable with,” a spokesman for Prime Minister Gordon Brown told reporters. “We are going to study the proposals. Each country will have a particular set of circumstances.”

Financial services minister Paul Myners told Reuters Insider TV Obama’s plan was tailor made for the “idiosyncratic problems” in the U.S., arguing that proprietary trading, hedge funds and private equity were not at the heart of the UK crisis.

However, Conservative officials said Obama’s move would put similar ideas on the table at global meetings and could open the door to similar moves elsewhere, including Britain, especially the proposed ban on the most risky trading techniques.

“We think there is a case for it,” an aide to the Conservative leadership told Reuters. “It’s now on the table. Six months ago, people said this is irrelevant because the Americans wouldn’t do it, but they have now.”

The Conservatives are tipped to win an election due by June, although some polls suggest a hung parliament could be on the cards after 13 years of Labour rule.

Political analysts have criticised the Conservatives for failing to give enough detail on their policy pledges.


The Labour government, which took large stakes in banks to avoid a collapse of the system, has announced curbs on bankers’ pay, proposals for disaster recovery plans for investment banks and is beefing up its financial watchdog.

Shadow Chancellor George Osborne said Obama had made “space for the rest of the world to come up with ... a sensible system of international rules.”

But he said he would not back any measures that might damage the British financial sector — a key component in the economy.

“If we need new rules they should be agreed internationally and I think the G20 meeting in South Korea in a few months’ time is a good place to try and map out those rules,” Osborne said.

Osborne said some forms of trading should be kept away from safer areas of banking activity.

“There are plenty of investment banking activities that are serving the needs of customers and clients,” he said.

“It’s the riskiest end of investment banking, it’s when they are making huge bets with the bank’s own money and the bank’s balance sheet that I think we need to separate from retail banking.”

The Conservatives say they would not split banks but think such activities are probably best left to hedge funds.

Osborne has already outlined some of the reforms they would introduce to financial regulation, including abolishing the Labour-created Financial Services Authority watchdog.

He has also backed some form of global insurance levy on banks to protect the taxpayer from footing the bill for future financial crises.

(Additional reporting by Keith Weir)

Editing by Andy Bruce and Toby Chopra

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