LONDON (Reuters) – Britain’s banks face some of the world’s toughest regulations under reforms outlined yesterday, which require them to insulate their retail lending activities and store up billions in extra capital at a cost of up to 7 billion pounds ($11 billion).
Chancellor George Osborne said he would fast-track legislation based on the proposals, aimed at avoiding a repeat of the financial crisis which led to two of Britain’s biggest lenders, Lloyds and Royal Bank of Scotland, being bailed out with massive injections of government cash.
“We’re getting right up there with the Swiss in terms of having the most onerous capital regime,” said Jane Coffey, a fund manager at Royal London Asset Management. “It may not restore confidence for shareholders but it will restore confidence for bondholders.”
In its final report, the Independent Commission on Banking (ICB) insisted banks hold core capital of at least 10 per cent in their domestic retail operations.
It also set a higher benchmark than other European reforms with a requirement banks hold primary loss-absorbing capital of between 17 and 20 per cent — a level which only the Swiss also plan to introduce.
By comparison, new global regulation due to come into force in 2019 asks banks to hold a minimum of 7 per cent in quality capital, or a likely 9.5 per cent for the biggest.
The ICB estimated the annual pretax cost of its proposals for Britain’s banks at between 4 billion pounds and 7 billion and recommended that the reforms be completed by 2019, to take into account the current economic environment.
The British government backed the report, saying it would help boost the economy and protect taxpayers.
“John Vickers (ICB head) himself sets out a timetable and I intend to stick to his timetable. So he says let’s have all the changes in place by the end of this decade,” said finance minister Osborne. “There are a lot of changes involved, that is why it will take some time, but let’s get the legislation through in this parliament,” he added.
Britain’s banks form a powerful lobbying group since financial services are estimated to contribute some 10 percent to the UK economy.