BANKS will be forced to cover more of the losses during any financial crisis with depositors handed greater protection, as part of a shake-up of the sector unveiled by George Osborne.
The changes were announced as the Chancellor warned that the UK’s big banks would be broken up if they did not follow rules to separate risky operations from savers’ deposits.
Banks will be forced to keep everyday banking activities separate from more volatile investment activities, with a “ring-fence” introduced to protect the deposits of individuals and businesses under the law change.
The Banking Reform Bill will also give depositors, protected under the Financial Services Compensation Scheme, preference if a bank enters insolvency.
Ministers will be handed powers to ensure that banks are more able to absorb more losses during a crisis, such as the 2008 banking collapse.
Mr Osborne used a keynote speech yesterday to warn that 2013 will be the year when the banking system is “reset”, as he promised to “electrify the ring-fence” if lenders failed to split high-street branch operations from the dealing floor.
A new regulator will be appointed to hold “banks to account” the Financial Secretary to the Treasury, Greg Clark, pledged as he laid the bill in the Commons yesterday in what the government said was the “biggest shake-up” to the sector in decades.
Mr Clark said: “The bill will mean that taxpayers are never again on the hook when banks fail.”