Banking reforms to give extra security to savers

Published on 13/06/2012 12:09

CONSUMERS will be given greater protection if a bank collapses under plans due to be announced by the Government tomorrow.

Chancellor George Osborne’s banking white paper follows last year’s recommendations by the Independent Commission on Banking (ICB), led by Sir John Vickers, on how to make the sector safer and give extra security to savers.

Mr Osborne is expected to press ahead with the ICB’s more contentious proposals that will see individual depositors ranked above bondholders and corporate creditors when it comes to recovering cash owed after a bank failure.

Ahead of the Chancellor’s annual Mansion House speech tomorrow evening, he is considering an important concession to banks angered by ICB proposals to ring-fence depositor cash from riskier operations and investment banking.

The Government is planning to broaden the range of activities allowed within ring-fenced businesses. This could include simple hedging tools, such as those to protect consumers from interest rate and currency fluctuations, as well as loans to small businesses.

David Strachan, co-head of the Deloitte centre for regulatory strategy, said: “So far, banks are understandably holding off committing to the design of a ring-fence that may ultimately not meet the Government’s criteria.

“Given the complexities and execution risks involved in restructuring of this magnitude, it’s essential that banks and investors first get the clarity they need and then there is enough time for the banks to implement all this properly.”

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