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.

Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
premier league
Have you tried new the Independent Digital Edition apps?
ebooksAn unforgettable anthology of contemporary reportage
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
people'I hated him during those times'
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
Dame Vivienne Westwood has been raging pretty much all of her life
peopleMemoir extracts show iconic designer 'felt pressured' into going out with Sex Pistols manager
Life and Style
fashionAlexander Fury's Spring/Summer 2015 London Fashion Week roundup
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late on stage in Brixton show
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
people''Women's rights is too often synonymous with man-hating'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs General

Head of Marketing and Communications - London - up to £80,000

£70000 - £80000 per annum: Ashdown Group: Group Head of Marketing and Communic...

Nursery Nurse

Negotiable: Randstad Education Manchester: Level 3 Nursery Nurse required for ...

Nursery Nurse

Negotiable: Randstad Education Manchester: L3 Nursery Nurses urgently required...

SEN Teaching Assistant

Negotiable: Randstad Education Manchester: We have a number of schools based S...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam