Bischoff report rejects 'Glass-Steagall' for UK

Investment and retail banking should not be split, says committee on reform

A high-powered committee of City figures chaired by the Chancellor and the former chair of Citigroup Sir Win Bischoff has rejected the idea of separating retail and investment banking, through the creation of "narrow banks", and called for a balanced approach to regulation of the financial system.

In his foreword to the Committee's report, UK International Financial Services – the Future, the Chancellor stated: "No one wants regulation that stifles innovation or prevents wealth creation... But at the same time, no one wants to see banks taking excessive risks that can bring the whole system down. This is not an easy balance to strike but it is one we need to get right."

The report strongly backs the idea of "macroprudential" regulation – the use of banks' capital ratios and other prudential requirements to manage the growth of credit in the economy. The idea is to make the banks lend more during downturns and less during booms, and has been advocated by the Bank of England, on a model pioneered by the Spanish authorities. It is felt that this might be a more effective way of managing the credit cycle than by using interest rates, which would continue to be used to target inflation.

Lord Myners, the Financial Services minister, reiterated support for that idea and said that the Government would state which body would be taking the lead in this field – the Bank or the Financial Services Authority – when it produces its own proposals on financial regulation in the next few weeks. He told the media that the Bischoff report also tries to "draw a line behind the past", and set a clear course for the financial services sector over the next 10 to 15 years.

There are also recommendations that the City builds closer relationships with emerging economies and new financial centres, such as Shanghai, Mumbai and Dubai, and strengthens its expertise in new fields. In particular, Sir Win identified carbon trading, Islamic finance and a range of financial services associated with demographic change and ageing populations – the so-called "pensions time bomb". He conceded that London could lose market share as a result of the growing activities of other financial services hubs, especially in Asia.

The Bischoff report's rejection of a modern-day British Glass-Steagall Act, passed by the US Congress to separate investment and retail banking in the aftermath of the Wall Street Crash and repealed in 1999, brings the Government into potential disagreement with the Governor of the Bank of England, Mervyn King. He said in February that he found the idea "instinctively... very attractive", though recognising strong arguments against it, and has since called for a debate on the issue.

Political reaction to the Bischoff report was lukewarm. The shadow Chancellor, George Osborne, said: "This report is fine as far as it goes. But I am a little disappointed that it has not gone further in addressing fundamental reform of the tripartite system of regulation that failed so spectacularly."

Shying away from recent controversies about the 50p rate of tax and its impact on London's ability attract internationally footloose talent, the report merely observes that "the Government and the industry must work together to... manage tensions between the need to maintain fiscal stability and ensure the tax system can respond to important market trends".

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

Reach Volunteering: Trustees with Finance, Fundraising and IT skills

Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent