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".
- 2 Top Gear: Jodie Kidd, Philip Glenister and Guy Martin 'in advanced talks' to join show
- 3 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 4 University student in court for allegedly covering housemates' food in window cleaner and spit
In defence of liberal democracy
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
Andy McSmith's Sketch: Feisty audience is the real star of an enlightening show
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...