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Osborne says it would be ‘foolish’ not to reform banks

Chancellor to see copy of Vickers report on financial sector before official publication

George Osborne insistedon Thursday that it would be “very foolish” not to take action to avert another banking crisis as he awaited delivery of his personal copy of a 300-page tome from Sir John Vickers on his commission’s ideas to protect the taxpayer from future bank bailouts.

The chancellor and other key ministers will be handed confidential copies of the report by the independent commission on banking on Friday, before formal publication at 7am on Monday.

Vickers is expected to flesh out proposals to ring-fence high-street banking from “casino” investment banking arms – as suggested in the interim report in April – in a move that is deeply unpopular with the industry which has been lobbying to water down the proposals.

The independent forecasting group Item Club has warned that splitting off banking operations could wipe 0.3% from gross domestic product because of the increases in the cost of borrowing for big companies, and the potential impact on the economy has led to speculation that the government will not attempt to implement the details of the Vickers’ report until 2015 at the earliest.

Speaking before he had seen the final report, Osborne said: “This country had perhaps the greatest banking crisis and crash in its history a couple of years ago and it would be very foolish not to learn the lessons of what went wrong, very foolish not to try to protect British families from having to bail out banks again on the scale that they had to bail out banks a couple of years ago.

“That’s what John Vickers was asked to look at and I think we should all wait for his conclusions and then I will respond. The very fact we are having this discussion I think is healthy.”

The chancellor chairs the cabinet sub-committee – on which business secretary Vince Cable, an outspoken critic of the structure of the banking industry, also has a seat – that will decide how to implement the Vickers recommendations. There are expectations that the government, which put reforming the banking industry at the centre of the coalition’s policy agenda, will move quickly to put changes on the statute books early next year but allow a longer implementation phase.

Banks want clarity on where the ringfence will be drawn and speculation is rising that the businesses included inside the firewall will not just be retail deposits but also those from companies, leaving investment banking on the outside. The ring-fenced businesses, according to Vickers’s interim report, are to have a higher capital buffer of 10%.

Vickers is also analysing competition on the high street, and had suggested Lloyds Banking Group be required to sell off more than the 632 branches currently up for sale in a move demanded by EU regulators when the bank was bailed out by the taxpayer. There is speculation that in the final report Vickers will step back from recommending an additional specific number of branches be sold, but instead set out a market share target that a new entrant would need to achieve to compete effectively with existing players.

A delegation of so-called challenger banks – such as NBNK, which is bidding for the Lloyds branches and the UK operations of National Australia Bank – met Cable on Thursday to discuss ways to make it easier to compete for business. The banks also want a cost benefit analysis to be carried out, to weigh up the impact on the economy from any proposals set out by Vickers.

The union Unite, which has calculated 150,000 jobs have been lost in the financial services industry since the crisis, urged the government to push through changes. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds