/ Money

Are George Osborne’s plans to fix banking enough?

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George Osborne has officially branded 2013 ‘the year of change in our banking system’ in his speech launching the Banking Reform Bill. But do the reforms really go far enough?

As finance campaigner for Which?, this morning’s speech gave me hope. It made me think that those who have been charged with making the important decisions on how to tackle the banking crisis might actually be listening to the consumer.

I’m under no illusions that there’s a big difference between rhetoric and actions. But it’s warming to hear the Chancellor talking of reforms to ensure that ‘banks work for their customers’ – one of the key asks of our Big Change campaign.

Changing banks for the better

The Banking Reform Bill has been introduced to Parliament this afternoon and, at its heart, seeks to change the very structure of banking groups. As a result, it should reduce the likelihood of banks ever needing huge government bailouts (funded by taxpayers’ money) to rescue them if they fail.

The Bill hopes to do this by introducing a ‘ring-fence’ to separate retail banking arms for their riskier investment arms. This prevents capital in the retail sector being used to fund activities in the investment arm. We should see a separate board of directors overseeing the investment arm, with only certain every-day banking activities being permitted within the ring-fence.

The Bill also outlines who’ll be responsible for maintaining the fence, and who’ll have the power to break banks apart entirely if they try to find ways around the ring-fence.

There are other proposals that should be welcomed too. For example, the introduction of a faster seven-day bank account switching service will help consumers switch to better banks and promote competition. But we would rather the government goes further and investigates the introduction of portable account numbers, which would make switching banks as easy as changing mobile phone provider.

What about bank sales culture?

However, the legislation is still missing a plan to tackle the sales driven culture that’s been responsible for the continuing banking crisis. We hope that the Chancellor’s call for professional standards in banking leads to meaningful action.

As it stands, it appears to be a good first draft. But I fear that if the government truly wants to turn public anger into trust again, the reforms need to be even better.

Richard Robbins says:
5 February 2013

As Max Keiser keeps on saying – ad nauseam – the Banks need to be made to obey the law. The regulators are effectively toothless and it is difficult to prosecute wrong doers. The banks are not miss-selling, they are engaged in fraud. This cartel should be investigated for racketeering.
Selling complex derivatives, aka interest rate swaps, to small businesses will destroy the economy. The banks take advantage of people’s financial illiteracy to cream off profits. In doing so the banksters seem to be engaged in some sort of lunatic scorched earth policy that will completely eradicate any possibility of a recovery.
Ultimately crashing the world economy will wreck everything for everyone. Who really wants to be the King of a cess pit?
George Osbourne can pass as many laws as he likes but if the banking cartel participants are never prosecuted, they care not what laws are on the statute books.
Only lengthy prison sentences will stop this.
What most people fail to realise is that the big banks will end up swallowing up all of the small competition. Ultimately it doesn’t matter if you move your bank account to a smaller bank or Building Society. George Osbourne will allow the too big to fails to mop up everyone else in order to “save” the economy from the suicide bankers who claim that if they obey the law, the economy will crash – code for we will blow up the economy if you interfere in our fraud.
When the government is clearly in the employ of the banks, you will get nothing of substance done about the bankster plague.
When banks can commit serious crimes by manipulating global interest rates with gay abandon, clearly we are in trouble.
How about Which? investigate the manipulation of the precious metals markets by JP Morgan et al? It is one of the worst kept secrets to those who are financially literate. Re-hypothecation and central bank leasing (sell gold while simultaneously retaining it on their balance sheets) of gold has resulted in massively suppressed markets – and in doing so has made currencies appear stronger than they really are.
The entire financial system is based on fraud and deception.

richard says:
6 February 2013

I wouldn’t trust George Osborne to manage ANYTHING well – especially anything to do with Banks (the Tories friends)

Sheila says:
8 February 2013

Wouldn’t trust government (still rewarding failure and protecting themselves) and will never trust a bank again.
“Ordinary” bank employees get normal pay and do a reasonable job but the so called high flyers/traders etc are more like vampire bats!

Particularly infuriated by statements like “must pay ( ridiculously high) salaries and (mega) bonuses to keep the best people”

WHAT best people? Most of these top bankers are cowboys with a flagrant disregard for customers. Others are just gamblers who should be made to use their own money to play with.

WHERE would these mythically irreplaceable folk disappear to if ALL UK banks started paying ONLY fair salaries and no bonuses?
If the answer is abroad, then let them go and try to compete in an open market for highly paid jobs fiddling funds elsewhere!
Lots of top salary bank staff are living in fear of imminent redundancy and some desperately seeking jobs so why the need to bribe those currently in employment to stay?

Sunny Jim says:
8 February 2013

George Osborne is an utterly disaster. H utterly failed to see the banking crisis coming and clearly hasn’t a clue about what needs to be done to resolve it, let alone how to fix the economy.

He has watered down the Vickers proposals and given in time and again to covert lobbying pressure by the banks to minimise the scale of the changes and maximise the time they are given to implement them.

He needs to completely separate high street from investment banking, end the scandal of the derivatives market and impose a windfall tax on banks and bankers to ensure that they – and not the unemployed, the destitute and the homeless – are made to pay for the mess which they have created.

George Osborne is only intent on dismantling the welfare state and sabotaging any meaningful action to tackle climate change by promoting renewable energy. He is an utter disaster and should be sacked at once.

kenneth says:
8 February 2013

90+% of politicians have abdicated their responsibilities for safeguarding society. They are owned by the banks and international conglomerates and oil companies in particular used to levy more and more tax indirectly. Short termism is everything, society can do nothing to correct this situation, we have democracy only for the time it takes to put a cross on a ballot paper at an election. Some democracy!

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Unless until executives of banks and other institutions are personally heavily fined when something goes wrong instead of just the institution being fined (which means that in the end result we [the customers] pay the fines) bankers and other high ranking executives will continue to take unnecessary risks and bend the rules because they personally will not be hurt if and when they are found out. Hit their pockets hard for misdemeanours and they will then act more responsibly.

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Is it too much to ask for there to be a bank, or banks, that are established purely for administering personal accounts, not tied to the tails of major commercial interests or are involved in deception and price fixing and do not pay their senior staff obscene salaries and bonuses?

Maybe one exists, if so, I’d like to know!


No, it”s not too much to ask. They are called Building Societies.

Wojciech Dmochowski says:
11 February 2013

I completely agree with Richard Robbins. Why isn’t Bob Diamond facing the prospect of a trial over Libor? The banksters are responsible for PPI, sanctions busting, laundering the profits of drug cartels, “risky investments”, etc. There is no code of ethics governing their conduct. The Tory Party receive 50% of their funding from The City so their inaction is hardly a surprise – Rich White Trash all in it together…

Mark St Giles says:
12 February 2013

Both the Vickers Report and the Government have shirked the obvious solution. Ring fencing will never work since the banks will quickly find gaps in the fence. The only and obvious solution which served America well is complete separation a la Glass Steagall. This did not in any way damage America’s economy which flourished up to the repeal of the act in 1999. As one senator said ten years after the repeal ““To fuse together the investment banking function with the F.D.I.C. banking function has proven to be a profound mistake.” Banks have mounted a successful PR campaign to show that separation would damage their ability to lend to small business, the standing of the City and so on. This frightened the politicians, most of whom are financially illiterate, enough to rule it out. But no one has ever explained why separation would be so damaging. If for example banks split their utility banking from their casino banking into two parts and gave a share in each to existing shareholders, it would be interesting to see which part would be valued more highly by the market. If only deposits with the utility bank were insured, that would also ensure that the casino part would have to pay much higher rates to finance their fun and games. It is interesting to note that Osborne has revived this debate.Perhaps he has seen the light.

Adrian Montagu says:
21 February 2013

Total separation of investment banking please. Computer controlled buying and selling MUST be restricted to a maximum of 1 transaction a second or we will have a computer generated crash (financial). Lets have amortisations instead of the current mortgage system where we have fixed interest rate for the term and a fixed repayment element and therefore a reducing interest payment. They do this in other countries. No derivitives please as it is the tail wagging the dog – it affects the business in which those derivitives speculate.


Edgecumbe VANBECK says:
21 February 2013

“a politician is an a**e upon
which everyone has sat except a man”

e. e. cummings

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The main problem is that the banks are indeed ‘too big to fail’. They should be broken up. Not just into ring-fenced retail and gamblers but into smaller, more customer-friendly banks such as we used to have – National Provincial, Westminster, Midland, Lloyds, Trustee Savings etc. Then we would have real choice, less likelihood of major scandals and more ability to punish the wrong doers.

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The problem is that the banks ARE ‘too big to fail’. They should be broken up.

Not just ring-fenced into retail and gamblers but into the smaller, more customer-friendly banks that we used to have – National Provincial, Westminster, Midland, Lloyds, Trustee Savings etc. Then we would have real choice, less likelihood of major scandals and more ability to punish the wrong doers.

David Pyke says:
21 February 2013

It is quite ridiculous that bonuses are awarded immediately following a bank’s financial year end performance. That “gap” should be extended to at least three years to ensure any downturns in service and/or performance, such as mis-selling for example are “netted off” against any proposed bonus and to encourage continuity of service (avoiding job hopping).

tony browne says:
21 February 2013

I would like mr osborne to answer why the the major banks are privately owned, print money out of fresh air and then loaned to us with hefty interest. But to be honest i know why, most people are totally unaware. Plus you will never see this in the press.

KEVIN says:
21 February 2013

NO! The reforms do not fo far enough and the Banks have yet again, been let oof the hook with a mild slap of the wrist, It is the boys club out there for them and their millionaire friends in the city.

Dr Bob Matthews says:
21 February 2013

The banks will continue along their merry way and find ways around any legislation unless the following is implemented now.
1) Bank excutives who presided over the scandals of PPI, overcharging, Libor rate fixing, and issuing CDS, really worthless paper repackaged as valuable financial instruments, should be charged under the theft Act for knowlingly either committing fraud or being party to committing fraud. Until the senior executives and directors face the courts, and if found guilty face gaol sentences and their personal assets seized, then the corrupt gravy train will continue. These arrogant masters of the universe bang on about we have to pay to get the best need to be brought back down to earth and reality. They should not be paid bonuses, their salaries should be no more than 30 times the salary of their lowest paid employee, and they should be on probation for 12 months with an independent banking assessor determining their behaviour and continued employment.
2) Salary increases must be justified by performance and this should be judged by a customer representative who should have the power to block any unjustifed pay awards.
3) All bank senior executives and CEO’s must have a formal professional banking qualification and be individually licenced to operate as a banker. Any failure to conform with the basic rules of banking i.e. honesty, probity and transparency must automatically lead to suspension of the operating licence pending an independent audit. Should the audit prove dishonesty, corruption of failing to comply with the terms of the banking licence, then the offender will automatically be prosecuted, lose their licence for 1 years and be debarred from working in the Financial services or banking sector for the same period.
The banks an dth eCity will ahte all of this and threaten to move out of the UK, time to call their bluff, the too big to mfail has been replaced with the too big to prosecute. Until this sham of a fraudulent banking system is brought to heel with draconian rules the banks will not change.
Regarding computer trades, they should be banned, the only real winners in this trade are the vulture speculators who no interest except self interrest. The world will not grind to halt, it will just bring business back to reality and at a slower, more honest and more rewarding for the many.

T. Warren says:
21 February 2013

On your last point, I do not see why computer trades should be banned. They are an effective way for individual members of the public to trade quickly and with full knowledge of the current price of shares.


T. Warren

I suspect that the commenter was referring to High Frequency Trading (HFT) which is not available to the average person, only those large banks with co-located computer servers able to execute trades in microseconds, potentially ahead of the rest of us mere mortal retail investors.

Here is Andy Haldane of the BoE on HFT:

“The Flash Crash was a near miss. It taught us something important, if uncomfortable, about our state of knowledge of modern financial markets. Not just that it was imperfect, but that these imperfections may magnify, sending systemic shockwaves. Technology allows us to thin-slice time. But thinner technological slices may make for fatter market tails. Flash Crashes, like car crashes, may be more severe the greater the velocity.”

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I’ll believe it when I can get a mortgage, when the interest rates for savers goes up, and when banks take security seriously. Yesterday I received a new debit card from Barclays, with something called Contactless. This means that payments can be made merely by waving it at a machine. No photograph, no PIN required, no nothing. Anybody could do it, including muggers and pickpockets. The banks say that each transaction is limited to £20, but there’s nothing to stop a thief using the card to facilitate dozens of transactions, thus emptying one’s bank account very quickly. No doubt it would take months for the stolen money to be replaced.
I called in at the local branch, but nobody could tell me how to de-activate Contactless or how to change the transaction limit to £zero. Either of these would solve the chronic security risks associated with Contactless. Whoever thought up such a system typifies the banks’ attitude to customers – encourage maximum spending and debt at all costs. But this time it doesn’t even have to be the customer doing the spending!

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All rules and laws are a nonsense unless they are enforced. Who has gone to jail for fraud or theft, otherwise known as mis-selling? Be it banking, tax law, food safety, etc. all UK governments show themselves incapable of clear thought. Let us have more guidance from wise men and less politics!

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Dr Bob Matthews has hit the spot regarding the prosecution of all individual banksters who have knowingly been involved in theft or fraud of any kind. Through ‘Which’ we should vigorously lobby for the prosecution of these distasteful individuals. Until the law is changed the banksters will continue to be the predatory criminals we know they are. They are no different from the gangsters who wrought such havoc in the USA during the years of prohibition and beyond. Government needs to wake up and understand the long term destruction caused by the current banking system. Democracy – what democracy? George Osborne’s plans are not nearly enough. Credit unions may be an alternative way forward!

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Interest rates. Deposit accounts should, by law, pay at least the current RPI or CPI rate, and then the government can guarantee loans to small companies with as much as it likes. As these rates vary, a reasonable average should be published by the Bank of England and the banks use it.

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Agree with a lot that has been already said, especially the lack of prosecutions regarding the clear law breaking, endemic in the financial world. They get away with it, because they know that they can. As this appears to be the case, it puts the questioning spotlight on the Establishment,by that i mean the law makers, politicians,solicitors,Bankers,Land owners,carpet baggers etc, who it seems to me to have a vested interest in maintaining the status quo, regardless of who suffers, and it is usually joe puplic/retail investor who does the suffering. The system is in need of radical change, but it wont work on a unilateral basis, the interconnected financial world needs to be on board so its going to be an uphill struggle, but it needs to be done and soon. I firmly believe that there are a lot of genuine, honest, hard working politicians out there that need to show the courage of their convictions and show some leadership,regardless of party lines and bring about the changes that are needed in the long term interests of our people. Anyone remember the Glass/seagal act, maybe if Bill Clinton had not repealed it after caving in under massive self interested group pressure , then perhaps the crash would not have occured or may not have been as severe,in any case the commercial side of banking should be regulated not by the FSA, but by the Gambling regulators as its process is pure gambling.

tony browne says:
22 February 2013

We are living in a financial system called fiat currency. Or to the layman currency without any value. Apart of course for the one percent. This system has been used throughout history and has always failed. And when it fails they come to our rescue and set themselves up again. That is why you have these extremely rich families throughout history.Maybe one day we will wake up but i doubt it.

Lesley Dennis says:
22 February 2013

I am really disgusted with the banks bonuses for fraud,how can they justify these in relation to interest rates for savings for the ordinary person in the street. There should be justice for the customers who are being cheated as never before. Mr Osbourne needs to get a grip on any form of financial fraud, both the banks and companies who cheat by avoiding tax. Why should they allow banks to avoid legal intervention by lobbying. This is nothing more than immoral. Why are all the main parties so enslaved to big money and have forgotten they were voted to ensure that the general public are treated honestly and fairly.

Michael James says:
23 February 2013

I agree with Piers that the sales culture of the banks is one of the main reasons for the lack of trust in them. If they were to stop that culture and concentrate on providing a professional banking and financial service to customers, with their interests in mind, then the banking industry will re-invent itself and society as a whole will be more stable.

Laura Holland says:
25 February 2013

It’s simple really this whole mess started with the deregulation which allows retail banks to engage in investments and strategies which used to be the sole preserve of merchant banks. Until this divide is reestablished the reforms do not go far enough. If a merchant bank fails its clients suffer, if a retail bank fails a far greater number of ordinary people lose all their money, so the government has to step in and economy is destablised, if it can’t step in people starve – merchant bank clients never starve they all have other assets and investments. The argument about bonuses is a great media smokescreen for these simple facts- retail bank executives never used to make huge bonuses because growth was slow and steady, or non existent this is the natural pattern for retail banks- however once wild speculation on complex investments started profits rocketted and so did bonuses. The problem bonuses now appear to be permanently high whether profits are comeasurate or not even with banks now partly owned by the taxpayer, this ought to be stopped but succesive governments have bowed to lobbying to keep regulation so light it is almost non-existent.
Boom and bust will continue and bailouts will be needed until retail banks are prevented from acting like merchant banks.