Wednesday, June 15, 2011

Banks face their biggest shake-up since the 1930s in attempt to prevent another financial meltdown

George Osborne will propose strict ‘firewalls’ between their high street retail operations and their ‘casino’ investment arms. Banks today face their biggest shake-up for 80 years in an attempt to prevent another financial meltdown.Each of the two divisions will be required to have separate staff, funding arrangements and computer systems.Banks will be required to hold far higher levels of cash reserves for use in the event of another crisis. That would rule out the need for bailouts if investment divisions get into trouble.The measures do not satisfy widespread demands for a complete separation between casino and retail banking.The Chancellor’s move is designed to stop reckless decision-making once again ruining the economy and jeopardising the savings of ordinary customers.The reform blueprint – to be outlined in Mr Osborne’s Mansion House speech to City leaders tonight – was drawn up by the Independent Commission on Banking.Requiring banks to hold far more cash, his interim report suggested, could push mortgage rates up by around 1 per cent, adding almost £1,000 a year to the cost of repaying a typical £140,000 mortgage.There are also concerns that customers will be forced to pick up the bill in the form of higher charges. But a source close to the Chancellor said: ‘This is a far-reaching shake-up to make high street banks safer and protect taxpayers.‘Britain is now leading the world in learning the lessons from the disastrous failures of the last decade.’Aides say the move is the biggest shake-up of the financial sector since the 1930s.There have been growing calls for reforms to create a firewall between high street banking, such as savings accounts and mortgages, and riskier, internationally-traded services.However Barclays, HSBC and Standard Chartered have each voiced concerns over the direction of regulation and have suggested they could move offshore if they felt their business was being damaged by new rules.‘The Government set up the Banking Commission to ask tough questions that weren’t asked before the crisis, and this is right at the heart of their answer.The Royal Bank of Scotland, which is 70 per cent owned by the taxpayer, has hired dozens of City high-flyers on big salaries for its investment division.

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