Osborne and Cable clash over plans to ring-fence banks' high-risk arms


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The Independent Online

Conservative and Liberal Democrat ministers are at loggerheads over plans for sweeping reforms to Britain's banks aimed at avoiding another taxpayers' bailout in a future financial crisis.

The Business Secretary, Vince Cable, is demanding the immediate introduction of proposals to force the banks to ring-fence their high street and riskier investment arms, that are due to be published by the Independent Commission on Banking on 12 September.

But David Cameron and George Osborne, the Chancellor, are sympathetic to the banks' demand for them to be given several years to build the "Chinese walls" to be proposed by the commission chaired by Sir John Vickers – which could see the reforms delayed until after the next general election. Nick Clegg is backing Mr Cable and the timing of the reforms threatens to provoke a power struggle at the top of the Government. The Chancellor is expected to endorse the Vickers blueprint, which will be based on ring-fencing the banks' retail and investment – or "casino" – arms, rather than the full separation originally favoured by the Lib Dems.

But the banks have launched a huge lobbying exercise, extending to 10 Downing Street as well as the Treasury. They are hopeful of persuading Mr Osborne to delay the ring-fencing for years. "There is a battle under way now inside the Coalition. It is all about timing," a Whitehall source said yesterday.

The Business Secretary wants the changes added to the Financial Services Bill, which is going through Parliament and will set up a new regulatory system for the City of London. He is worried that shelving the Vickers plan until after the next election could mean it is never implemented. He suspects bankers are citing the current uncertainty in the global economy as an excuse for delay in the hope the reforms will be kicked into the long grass.

Mr Cable will demand the Government uses its stake in Royal Bank of Scotland and the Lloyds Banking Group to force the pair to ring-fence their high street and investment operations as soon as possible. Yesterday Lord Oakeshott, a Lib Dem peer and close ally of Mr Cable, accused the banks of behaving "like car manufacturers who say they cannot afford proper brakes".

The Confederation of British Industry (CBI) threw its weight behind the campaign by the British Bankers' Association to delay the shake-up.