Osborne under attack as MPs decry bank reforms

Commission slams Chancellor for his inadequate stance on protecting depositers

The credibility of Chancellor George Osborne's banking reform plans will be dealt a body blow this morning in a sharply critical report by the Parliamentary Commission on Banking Standards that he set up.

The Commission will repeat its demand that watchdogs be handed reserve powers to break up the entire British banking industry, dismissing government arguments against this as "insubstantial".

And it will say the Government has "wrongly suggested" that the power would be handed to regulators without sufficient safeguards.

The report also attacks inadequate provisions for an independent review of the planned ring fence to protect retail depositers and small businesses and accuses ministers of "siding with the industry" over leverage ratios – which govern capital and the amount of risky activities banks can undertake. The report concludes: "There is still a long way to go if the legislation now before the House of Commons is to provide legislative impetus for a transformation of the UK banking system."

It contains several proposed amendments to the Bill – the second reading of which is slated for March 11 – designed to make it tougher on banks. Ministers have so far only been prepared to give watchdogs the power to break up individual banks that seek to flout or "game" the ring fence, if they can prove the problems are severe.

Mr Osborne has argued that this makes handing regulators the power to split the entire industry unnecessary and that such a draconian sanction should require a Government to bring forward a new law before Parliament.

But the report blasts his arguments saying: "The Government has been at pains to make the case against the provision for full separation being implemented on the say so of the regulator. The Government has erected a straw man which it has then successfully demolished, because we made no such recommendation in our first report.

"Instead, we envisaged that the legislative provisions would be brought into force only in the light of the recommendations of [an] independent review [of the ring fence]."

The report will also say that Mr Osborne has "failed to adequately address" the Commission's call for an independent review of the ring fence, which has been vocally supported by the Bank of England although it concedes that there have been signs that ministers are moving in this direction.

It describes Mr Osborne's reluctance to ban banks from certain corporate structures that might put the ring fence at risk as "curious".

And the Commission attacks the Government on the question of banking leverage – or the amount of lending and other activities banks are allowed to undertake compared with the capital they hold.

"The Commission remains wholly unconvinced by the case made by the Government against a higher leverage ratio for UK banks by reference to international requirements," the report says. "As the Governor of the Bank of England [Sir Mervyn King] told the Commission, the banks have lobbied very successfully in this area.

"To date, the Government has sided with the industry in resisting calls for a higher leverage ratio."

The Commission's chairman Andrew Tyrie does concede that the Bill is "much improved". But he says: "The Government rejected a number of important recommendations. The Commission has examined these again, alongside the Government's explanations for rejecting them. We have concluded that the Government's arguments are insubstantial."

Read more on this topic: Millions don’t trust their banks

Suggested Topics
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: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future