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MPs: protect bank deposits with 'electrified' ring-fence

The Banking Commission has told the government it must toughen up the banking rules around protection of consumer deposits.

MPs: protect bank deposits with 'electrified' ring-fence

The government’s Banking Commission has called for the ‘electrification’ of the proposed ring-fence around consumer deposits in banks following more ‘collusion and corruption’ in the banking sector.

A report by the Parliamentary Commission on Banking Standards, chaired by Andrew Tyrie, said ring-fencing consumer deposits from banks’ riskier business is welcomed, but the government must go further to protect consumers deposits and protect taxpayers from the risk of another bailout.

Tyrie said an inquiry into banking standards was commissioned following revelations about the Libor scandal, but ‘the latest revelations of collusion, corruption, and market-rigging beggar belief’.

Focusing on the ring-fencing proposals in its report, Tyrie said it could help banks to fail in a safer way, but he had reservations about the strength of the proposals.

‘The proposals, as they stand, fall well short of what is required. Over time, the ring-fence will be tested and challenged by the banks. Politicians, too, could succumb to lobbying from banks and others, adding to pressure to put holes in the ring-fence,’ he said.

‘For the ring-fence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to. That’s why we recommend electrification. The legislation needs to set out a reserve power for separation the regulator needs to know he can use it.’

The Banking Commission does not just want to give the regulator more power over banks’ business structures but also ensure banks’ board members take responsibility for keeping consumer deposits safe.

The report said: ‘The commission recommends that the government insert within the Financial Services and Markets Act a legal duty on boards of directors to preserve the integrity of the ring-fence.’

However, the commission warned that a ring-fence would not negate the need for a bail-out regime in the UK if another bank should collapse.

Tyrie said: ‘A ring-fence alone cannot solve the "too big to fail" problem… The current proposals need strengthening in order to assure parliament, and the markets, that we are not creating a paper tiger. Rules with real teeth are required.’

15 comments so far. Why not have your say?

Chander Hingorani

Dec 21, 2012 at 13:07

Our regulation has been non-existent and gut less as indeed in other sectors like energy. We have to have zero tolerance. Banks on their own cannot discipline themselves as their governance is weak as demonstrated by the massive banking failure which cost the taxpayers billions of pounds. Once again they are making the point that Board members take responsibility-haven't we leartn the lesson? you cannot be game keepers and poachers. Simple.

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Ian Lewthwaite

Dec 21, 2012 at 15:12

I want a job as bank regulator, they would then understand the rules of bankruptcy, you loose the lot, no private hideholes, Even now which of the transgressors has lost a penny, absoutely none of them.

The law is a bigger ass than it was, get rid of all the bullshit and flannel and lets have common law justice for once -as understood by working class people.

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Dec 21, 2012 at 15:43

Chander - the banking failure did NOT cost the taxpayers billions of pounds. You are falling for the popularist myth peddled by those who want someone to blame so that they do not have to accept any responsibility for the free spending of those around them who borrowed from the banks and the could not repay the debts.

The money which was not repaid was spent, primarily on UK goods, houses and services. Each time it was spent the Treasury took a cut such as VAT, stamp duty, 40% tax on wages (including employers' and employees' NI) and a myriad of other taxes. Even food is heavily taxed through wages. And what was left in employers' and employees' pockets was spent again and so on - each time a sizeable slice went to the Treasury. So apart from imports, foreign holidays and overseas remittances it all ended up with the Treasury. This spending of other people's money drove GDP up, so Brown told us all how prosperous we were and spent all of the extra tax receipts (and more).

When the crunch came the shareholders (mainly pension and savings funds) took the big hit. In a few cases this was not sufficient, so the taxpayer made up the difference, which was only a fraction of the extra tax receipts gained by the bubble. So overall, the truth is that the taxpayer made a PROFIT out of the bank crisis. It was effectievely a transfer of wealth from pension and savings funds to the taxpayer. If you have a DC pension fund, then just look at a graph of the valuation during this period to appreciate how hard it hit.

So the annual Brown tax on pensions was followed by this hidden tax transfer, and now low interest rates to protect borrowers hits savers and pension funds / annuities yet again.

That is a major reason, along with greater life expectancy, why DC pension forecasts have seen a cut of 60-70% over the last 15 years. Those in DB pension schemes cry when their future benefits are trimmed and damage society by striking. They never had it so good in terms of overall pension values.

Unfortunately few people understand the broad picture and knee jerk against half of the story as given by the media.

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Ian Lewthwaite

Dec 21, 2012 at 16:39

Hi Jon

Don't agree with your prognosis, if the banks had lent prudently, and I dont mean 120% loan to value on mortgage, a squeeze would have cost few tear. However there was no hope of some of these loans ever being repaid other than with rampant inflation continuing for many years. The history of the world shows that this is not feasible for anywhere near the 20-25 years required. Brown with the usual bankers/wankers arrogance also skimmed teh pension funds and spent it on nothing of sustainable value to the community, but in distorting the UK population, by immigration, with unreasonable support for these non- earners, with some idea that they would support/help to support the older members of our society.

They came in great numbers which the Border agency either don't know or dare not tell us the figures, the majority being unskilled and largely uneducated and a drain on the NHS, Housing Education, Unemployment pay etc, etc as well as the indigenous population, both coloured and white who find that they are keeping others who won't / don't want to work/never have or can't in a better standard of living than the actual workers themselves -

but refusing to recognise the damage caused- believing that these new citizens of dubious worth would vote for "more bread and cicuses" or LIEBOR.

when we pay millions for free legal aid to b*******s who should be kicked out for nefarious crimes, but their rights are more important than the paymasters- the UK have lost the plot completely and teh idiots are in charge of the asylum!

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Ed the 5th

Dec 21, 2012 at 18:18

For ,'These banks cannot be allowed to fail', read 'These banks should not be allowed to survive'.

Admittedly , in his book Michael Lewis was talking about American banks, but the same could equally apply to several of our big-name High St. banks.

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Dec 22, 2012 at 00:51

Ian - nothing you state challenges what I wrote. You have not challenged my economics, which is fact. The bottom line is that the taxpayer made a hefty PROFIT from the bank shareholders as their banks injected funds into the economy which were not repaid, but Brown spent it and more so there were no savings in the kitty to fund the bailout. Do you not understand how taxation on spending works ? The bit on pension funds is also fact. Stating that if banks had been more prudent is not contrary to what I said, but that is irrelevant as it is not what happened

But if you want a motive I suggest that everyone involved was being greedy. They all thought that house and office premises would keep on rising in value. The banks therefore thought their loans were fully secured and lent 120%. The estate agents, solicitors saw a nice big trough. The borrowers thought they would make a tidy tax free profit for no effort when they sold if they could not afford the long term mortgage. Like all bubbles it was GREED all round.

And the really silly point which the media never point out is that if the GDP artificially rises due to greater borrowing, it must be lower later as the borrowings are repaid.Brown's false boom is now causing a bust. We have 15 years of GDP growth totalling some 35% with a net drop of 2.9% since the crisis whilst all along the UK trade balance has been in the red. If half of the 35% was caused by extra credit then we are doing surprisingly well now. But see if Milliband and Balls can understand this let alone acknowledge it !! The ignorant protest when we try to put public spending back to previous affordable levels.It is clear now that Brown was ignorant. I wish the protesters were always asked how much extra tax they will personally pay to fund what they want !!

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Ian Lewthwaite

Dec 22, 2012 at 09:11

Hi Jon

It is back to prudence, common sense- if you give a child a packet of sweets- it will continue to eat until all are gone, (The bankers and borrowers) the restriction comes from the parent( BoE & FSA, and assumes that they do the job for which many are over paid ) who knowsthrough COMMON SENSE that the child will be sick and gives out only so many over a period of time.

The so called BoE & FSA and politicians wanted to make thingsto look good for the reasons I have stated(and others), but inevitably BOOM is followed by BUST, like night and day.

I was always taught that a firm can expand at about 14% under its own funding, faster than this involves borrowing leading ultimately to loss of the founders control.

Thomas Jefferson is reputed to have said many profound things, about America I will agree, but apply equally to all countries.

That it is incumbent on every generation to pay its own debts and MORE IMPORTANTLY added A principle which if acted on would save one half the wars of the world.

I do not question your money merry go round theory only that the money raised was p****** against the wall by the socialistic empty heads in power.

He also went o to say that Democracy will cease to exist when you take away from those who are willing to work and giv e it to those who would not!

That couldnt be the UK could it?

I have no problem with prudent socialism, properly costed and watched for the signs of unintended consequences arising from that ill thought out legislation, then acted upon immediately - not blame everyone else, for human nature taking advantage of that free ride at someone elses expense

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Dec 22, 2012 at 12:54

Hi Ian - I agree with almost all you have said. But whilst some children may eat all of the sweets, adults should not. I have mixed feelings about the level of control the state should exert as we can end up with a planned communist economy.

One of the key parts missing to-day is accountability. Bankers who wrecked our banks should have been sacked without any pay-off and with the return of past bonuses. Shareholders should set remuneration levels - pension and savings funds should vote in accordance with their members' wishes and so on. And anyone who acted rashly or negligently should be sued. So it is not just a matter of ring fencing bank deposit taking.

The media need to have more academic and informed reporters so they can pubilicize the risks companies and governments are running. Plenty of people saw the crisis coming but Jo public never heard that story.

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Ian Lewthwaite

Dec 22, 2012 at 15:42

hi Jon

We seem to be hogging this subject, are there no others out there who do not like what happened and will happen again and again?

Those responsible for the financial downfall including politicians, should loose the lot and if it was criminal, their lives- then all the good/bad pensions in the world can stay with the original owners, the shareholders.

The city is all right up to a point, the best use of money, but this needs some moral guidance as it has all too often gone to far and good UK businesses have gone to modern day theives and robbers, who strip out value and leave the responsibility of unemployment pay and the misery to the state Taxpayer to pick up the tab.

When I was younger the old man on retirement, put some money with Lambeth council for five years at a reasonable rate of interest then.

Now the disengenuous UK govt steal the interest that should be paid to the savers to live on, and flood the market with fiat paper- in competition with other countries to the bottom. With rapid devalued money, coupled with hyper inflation- and for what-- to save the thieving Bankers/money lendersfrom their own bankruptcy.

They should all be charged and stripped of all bonuses and pay since 2008, a short sharp shock would soon correct peoples conception of what they think they are really worth to the society in which they exist. It would be chaotic for a short while, as it is the can is just being kicked down the road for someone else to sort out. but the bill is still to pay in full!

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Ian Lewthwaite

Dec 22, 2012 at 15:44

Before the Yanks get round to it and skim the lot

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Forestbhoy via mobile

Dec 23, 2012 at 06:09

Successive governments are to blame, closely followed by inept regulators of the banking system. Thirdly the banks themselves and last but NOT least is ourselves, we knew this was madness yet how many of us were shouting about the kings new clothes ??

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Ian Lewthwaite

Dec 23, 2012 at 09:34

Hi Forestbhoy

I don't accept that Joe public was to blame, there are some who understand the various schemes which banks use to palm off crap risks, but I would venture to suggest that the ordinary mums& dads who invested through hedge funds and the like had no idea how the money was made only that their investments were growing.

The whole point is that tenuous bond between the saver and borrower/users in this case wasbroken.

TRUST is the word but excusing sharks and vandals in the form of Bankers, Government and so called Financial experts, who lets not beat about the bush had a Duty of Care for which they extracted high remuneration- but they go unpunished, passing the buck to everyone they can think of.

there is an old country saying - I don't keep a dog and bark myself . and

they were untimately responsible, now step up to the plate and take their medicine- but No they are all contrite -but where's their monetary contribution?

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Forestbhoy via mobile

Dec 24, 2012 at 00:25

Sorry but I think you Are wrong. Contrary to-popular belief,most "working class" people were well aware what wad going on and chose not to see the evidence before them.

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Anonymous 1 needed this 'off the record'

Dec 24, 2012 at 09:31

I thought the crunch began with Freddie Mac & Fanny Mae - not the insignificant British labour & conservative parties.

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Ian Lewthwaite

Dec 24, 2012 at 09:46

are you suggesting that a young couple on their first mortgage par example, really know know the wheeler dealer bankers tricks? All they know is that their incomes will cover a size of Mortgage, being young and in love/lust they have better things to think about.

I am fairly ancient and been in Insurance over 40 yearsand some of these schemes now revealed are fraudulent -not just bordering on it, but I was not fully aware how they all p***** in the same bucket, worldwide.

With eyes wide open now, and looking to others future I can see that this manipulation of the money supply and demand eventually leads to wars over commoditiesoi,l water, minerals for these controllers to get even richer/ more power, just like a giant chess game. Sorry I don't want to be a small cog in this manipulative wheel, so we have to cut off the head of the snake before things will start to get better for the world populus

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