BANKING NEWS INTERNATIONAL
UK and Germany:
tougher banking rules
Chancellor Angela Merkel’s coalition
government has drafted new banking
regulations intended to isolate excessive
risk-taking by banks, protect customer
deposits and limit the spread of financial
trouble within the banking system.
The regulations also propose stiffer
penalties, including fines and prison
sentences of up to five years, for
executives engaging in reckless
investment.
Banks running high-risk trading
operations valued at either 20% of their
balance sheets or €100 billion ($135
billion) will be required to transfer those
assets into legally and financially separate
units. The aim is to shield customer
deposits from the banks’ riskier trading
activities. Banks would also be required
to submit their own plans for restructuring
and liquidation in case of financial trouble.
The regulations will have to be
approved by the German legislature.
Deutsche Welle reports that parliamentary
leaders said they will reject the egulations
‘because they don’t go far enough to curb
systemic risk in the banking sector’.
BRITAIN’S “ELECTRIFIED FENCE”
Britain’s new Banking Reform Bill will
“ring fence” the High Street activities of
UK banks, requiring separate subsidiaries
for their dealing floors in the City.
Investment and High Street banks
will also have different chief executives,
and the ring fence is to be “electrified”
– regulators will be empowered to split
up a bank, subject to conditions, if the
regulator deems it to be undermining the
purpose of the ring-fence. Regulators will
also review the entire UK banking industry
each year to determine whether the ringfence is proving effective.
‘2013 is the year we reset our banking
system, so the banks work for their
customers – and not the other way round,’
Chancellor of the Exchequer George
Osborne told bankers in a speech at JP
Morgan in February. ‘No more rewards for
failure. No more too big to fail.’
From April, the UK’s Financial Services
Authority is to be abolished and the Bank
of England will be in charge of keeping
the UK’s financial system safe. ‘The Bank
of England will be the super cop of our
financial system,’ Osborne said.
The new measures have received mixed
reactions from the financial sector.
‘It’s important that individual banks
are in control of their own destiny on the
question of structure,’ the Chamber of
British Industry commented.
PwC UK’s Kevin Burrowes described
the electrified retail ring-fence as
“curious”. ‘The regulators have more
than enough weaponry available to
make banks comply regardless,’ he
says. ‘Electrifying the fence will be time
consuming as the Chancellor makes
the ultimate decision on whether to flick
the switch and force separation. The
Chancellor is sending a strong signal to
banks and the markets that he expects
them to take this matter very seriously
and not abuse the system on ringfencing. Few could argue that sending
this message is not necessary given
the sector’s current reputation.’ By
Deutsche Welle
Edition 5
BANKER SA
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