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Friday, April 08, 2011

Sorting out the banks

This morning's Daily Telegraph reports that the long-awaited measures to deal with the banks are about to surface, suggesting that Nick Clegg and Vince Cable will demand major reforms as the Liberal Democrats flex their muscles and adopt a more "arms length" policy from the Conservatives.

They say that the two Liberal Democrat Ministers will press David Cameron to implement in full proposals to restructure the banks to be published on Monday in the interim report of the Independent Commission on Banking chaired by Sir John Vickers, former head of the Office of Fair Trading:

Although the commission may stop short of recommending the full separation of the banks' high street and investment arms, Whitehall officials believe it is likely to propose putting the two functions into different subsidiaries within each bank. The aim of such ring-fencing would be to ensure that taxpayers never have to bail out so-called "casino banking" again.

Such a division could win the support of Mervyn King, Governor of the Bank of England, but Treasury officials are worried that some banks could move abroad if they judge the costs of the restructuring to be excessive. Imposing a costly shake-up on the banks, some Tory ministers believe, could also hinder the Government's efforts to persuade them to lend more to small businesses – dealing another blow to the fragile economic recovery.

This is one issue on which the Government need to be strong and determined. We cannot afford to allow the banking industry to carry on as it is. As for hindering Government attempts to persuade the banks to lend to small business, well frankly that is not working.

The Government has tried the softly softly approach but as any businessman will tell you, the banks are not listening. The tough option is the only one left and I hope that Liberal Democrat Ministers insist on it.
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