Holyrood calls for curb on banks 'gambling with savers' money'

BANKS should face restrictions on using the money of savers to "gamble" in the financial markets, a group of MSPs has told an inquiry into the future of banking.

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The submission from the Scottish Parliament's economy committee to the inquiry, which also said banks should be restricted in using retail deposits for "risky activities" came as the Independent Commission on Banking met in Edinburgh last night.

Former chief executive of the Royal Bank of Scotland Sir George Mathewson told The Scotsman that there "should be limits on proprietary trading for big banks" investing retail deposits, but claimed that the move backed by the MSPs might not be "totally realistic".

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The Holyrood committee's submission was also described as "half baked" by another former senior finance sector executive, former RBS chief Sir Peter Burt.

Sir Peter said it was "extremely difficult to evaluate risk" in banking and suggested that the MSPs were trying to use a "crystal ball" to predict future investment decisions.

The economy committee's submission said that there should be "greater limits on a bank's ability to carry out propriety trading and investment - to use its own money and assets to 'gamble' in the markets".

A key part of the report also said that there should be globalised agreements to restrict banks from using retail deposits and reserves to fund their more "risky activities".

The submission said that there should be "living wills" to make it easier to run down a failing bank" There was also a call to stop banks "selling on loans" and for "higher capital requirements - to make banks hold more cash reserves and assets".

But Sir George questioned whether the proposals to restrict banks using the deposits of savers were workable.

He said: "There should be limits on proprietary trading for big banks when it comes to using retail deposits

"But separating retail and corporate deposits might not be totally realistic, as there are small and medium-sized businesses that might be affected."

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However, economy committee member and Tory MSP Gavin Brown said more protection was needed for savers and depositors. He said: "People buying shares know that they can go up or down, but if someone deposits their salary in the bank, they tend to assume it will be safe."

A spokeswoman from the Independent Commission on Banking said the economy committee's proposals were among the options being "looked at" during the inquiry, which is due to make recommendations to the UK government by the end of September 2011.

The commission has been asked by the Chancellor to look at reforms to the banking sector to promote "financial stability and competition".