BANKING commission chairman Andrew Tyrie will launch a stinging attack on the UK government today, accusing it of putting forward “misleading arguments” in the debate over the ring-fencing of retail banking from the more risky “casino” activities of banks.
In its second report, Tyrie’s Parliamentary Commission on Banking Standards will also accuse the coalition of “railroading” the Banking Reform Bill through the House of Commons by not giving MPs enough time to scrutinise the draft legislation.
The criticisms are highly embarrassing for Chancellor George Osborne, who set up the commission last year in the wake of a string of banking scandals, including Libor rigging, the mis-selling of payment protection insurance (PPI) and interest-rate swaps to small businesses.
In its first report, published in December, the commission said the UK government should give itself the power to enforce an industry-wide separation of retail and investment banking activities if ring-fencing was found not to be working.
In today’s second report, Tyrie said: “This should be exercisable only after independent review and with Treasury approval, as we made clear in our first report. In rejecting this proposal, the UK government wrongly suggested our recommendation would give power to the FSA [the regulator] without appropriate safeguards.”
The commission claimed the UK government “erected a straw man, which it has then successfully demolished” in arguing its case against the provision for full ring-fencing being implemented by the regulator as a backstop.
Tyrie said such a proposal was never made by the commission, whose high-profile members include the Archbishop of Canterbury, Justin Welby, and former chancellor, Lord Lawson.
Tyrie said: “The bill would be strengthened by making specific provision to consider the case for full, industry-wide separation if the ring-fence is judged to be failing. The final decision would lie with the government and parliament and not with the regulator.”
He added: “Unless banks intend to try and undermine the ring-fence, they will not be affected.”
The commission welcomed a change in the Banking Reform Bill, in line with its previous recommendation, that legal responsibilities will be imposed on directors of ring-fenced banks in relation to its independence.
The body also noted with approval the UK government “seems to be changing its mind” on allowing a periodic independent review of ring-fencing.
But it warned that there is “still a long way to go” towards transforming the UK banking system.
It also criticised the government’s announced intention that the committee stage of the bill will finish by 18 April.
Tyrie said: “The UK government must provide adequate time for proper scrutiny of the bill, as well as of the recommendations contained in our final report [due in May].
“It is highly regrettable that the UK government appears to be compressing the timetable and railroading the bill through committee stage.”
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Saturday 18 May 2013
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