Osborne to back bank reforms – but not for eight years

Chancellor pledges to implement Vickers Plan in full in bid to avoid further bailouts

George Osborne will detail plans today for a wide-ranging overhaul of the structure of Britain's major banks, forcing them to split their high street and investment operations.

The aim is to prevent a repeat of the 2008 financial crisis when major banks had to be rescued from collapse by a multibillion-pound bailout from the taxpayer.

The separation – confirmed yesterday by the Business Secretary, Vince Cable – has been resisted by some of the banks which have claimed the shake-up could cost the sector up to £12bn and warned that the bill could eventually be passed on to customers.

There have also been tensions between ministers over whether to press ahead with such wide-ranging reform at a time when the economy is so fragile. However, Mr Osborne will tell MPs today he is implementing the full recommendations of the Independent Commission on Banking, which called for lenders to be forced to create "firewalls" between their retail and investment operations.

The banks will have to put their operations into legally distinct separate arms; exactly what goes into each entity will form the basis of detailed negotiations between ministers, the banks and regulators.

Mr Osborne will also tell the banks that they will have to hold more capital to act as a buffer against future financial emergencies.

Under the Government's plans, the complex legislation underpinning the changes would be passed by 2014-15 and the full separation completed by 2019.

The commission, chaired by Sir John Vickers, was set up to look for ways of making the banking system safer and increasing competition for customers.

Its main proposal was for banks such as Barclays and Royal Bank of Scotland to "ring-fence" retail deposits and business lending from the risky investment operations described by Mr Cable as "casino banking". The idea is also that the state, which guarantees retail deposits, does not indirectly subsidise investment banking. The Treasury is expected to confirm the commission's estimate that the plans could cost banks between £4bn and £7bn, although industry sources put the the cost at £12bn. They have also warned that banks such as HSBC will move their head offices away from the City of London.

Mr Cable told BBC1's Andrew Marr Show yesterday: "Our big banks were at the very centre of the financial crisis ... and it needs reform."

He said: "We can't have a position where the big banks are too big to fail, where there's a taxpayer subsidy, so we're going to deal with that problem."

The Business Secretary added: "It is absolutely right that we make the British economy safe. We just cannot risk a repetition of the financial catastrophe we had three years ago.

"Big structural reform of the banks was something we [the Liberal Democrats] fought for and argued for and now it is going to happen."

Critics will argue that the Chancellor is acting too slowly by delaying separation until 2019, although that was the date suggested in the Vickers report. Chris Leslie, a shadow Treasury spokesman, said: "There must be no foot dragging and no watering down of these reforms. That is why the independent commission should be asked to publish a report in 12 months on what progress has been made in implementing and legislating for these reforms."

But Lord Oakeshott, a former Liberal Democrat Treasury spokesman, said: "The Government's decision to accept the Vickers report and irrevocably break up the banks by 2015 is a triumph for a four-year campaign by Vince Cable and the Liberal Democrats."

Vickers reforms: at a glance

* Banks should ring-fence their high street banking operations to prevent the possibility of contamination by risky "casino" investment arms. The ring-fenced part of the bank should have its own board and should be legally and operationally separate. This reform should be implemented by 2019 at the latest.

 

* The ring-fenced part of the bank should have a capital cushion of 20 per cent of assets, considerably more than demanded at the moment by international capital adequacy rules.

 

* In the event of a bank's insolvency, ordinary savers should be paid back before any other creditors.

 

* Banks should make it easier for customers to switch accounts to their competitors by establishing an industry-wide account redirection service.

Start your day with The Independent, sign up for daily news emails
News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
film
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
filmIdris Elba responds to James Bond rumours on Twitter
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
Hackers revealed Oscar-winning actress Lawrence was paid less than her male co-stars in American Hustle
people
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
Sport
Wayne Rooney warms up ahead of the English Premier League football match between Tottenham Hotspur and Manchester United at White Hart Lane
football
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
Arts and Entertainment
Lena Headey as Cersei Lannister in Game of Thrones
film
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
News
Danielle George is both science professor and presenter
people
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs General

Recruitment Genius: Panel & Cabinet Wireman

£20000 per annum: Recruitment Genius: Panel Wireman required for small electro...

Recruitment Genius: Electronics Test Engineer

£25000 - £27000 per annum: Recruitment Genius: An SME based in East Cheshire, ...

Recruitment Genius: Marketing Assistant

£18000 - £22000 per annum: Recruitment Genius: Do you have previous experience...

Recruitment Genius: Accounts Administrator

£16000 - £18000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015