Bank changes ‘may wait to 2015′

31 August 2011 Last updated at 09:32 ET

Bankers have warned that reforms could risk Britain’s economic recovery

Any shake-up of British banks may not come into force for several years, government sources have indicated.

Although legislation could be passed to “split up” leading banks before 2015’s scheduled general election, changes may not take effect until after that date.

Business Secretary Vince Cable has said changes will go ahead despite the plans coming under fire from business.

The CBI said taking action now could starve businesses of the capital they needed and damage the recovery.

But Mr Cable said that suggestion was “disingenuous in the extreme”.

Ensuring taxpayers are not liable for any future losses or bank collapses, and ring-fencing banks’ retail operations, are among the proposals.

‘Creating a panic’

Anxieties about the big financial institutions were “all the more reason for grappling with this issue”, Mr Cable told The Times.

The Liberal Democrat minister said: “It is disingenuous in the extreme to use the current context to argue against reform.

“Banks are in a way trying to create a panic around something which they know has got to happen.

“The governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem.

“We can’t have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer; this can’t go on and it has got to be dealt with.”

The Independent Commission on Banking’s final recommendations are due on 12 September.

In its interim report published in April, the commission – chaired by former Bank of England chief economist John Vickers – recommended ring-fencing banks’ retail operations from their investment banking arms.

It also said that taxpayers should not be liable for future losses, and that depositors should get their money back before creditors.

But Mr Cridland told BBC Radio 4’s Today programme there had been “a radical slowdown” in the economy since that interim report and there was now real concern about the impact of any reform.

“We’re going to have a major problem if growth stagnates, and at that point, my businesses being able to get cash from their banks is critical,” he said.

“Anything which makes it harder for banks to keep the wheels of the economy well-oiled is not good timing.”

‘Risking recovery’

The Vickers commission was set up by the government last June to review the UK banking sector after it bailed out some of the UK’s biggest banks during the 2008 financial crisis.

The government is under no obligation to implement the Vickers recommendations.

The BBC’s Chief Political Correspondent Norman Smith said he sensed the government was “backing off” implementing any changes for some time and the banks would be given the “breathing space” they have been calling for to build up their financial strength after the 2008 crisis.

Prime Minister David Cameron said the government wanted to wait for the full report before responding to its recommendations.

“I think the key thing we want from our banks is really two things,” he said.

“First of all, to be lending into the real economy so we can support growth and jobs. But the second thing we do need to make sure that our banks are not taking risks that put the economy at risk.”

British Bankers’ Association chief executive Angela Knight said banks should be allowed to “finance the recovery first, pay back the taxpayer next”, and only then set about reform.

“If more regulation remains at the top of the list, then this will only have the affect of risking the recovery which is so essential to our future,” she said.

But one financial expert said pressing ahead with changes now need not be a problem if the correct framework was introduced.

“If have the right sort of reforms… which in this case ought to be means of making it easier for banks to be allowed go bust safely without causing problems for taxpayers or the wider economy, should introduce them at the earlier possible opportunity,” said Andrew Lilico, from financial consultancy Europe Economic.

— ’re ’s , . : A ‘Malign Intellectual Subculture’ – George Monbiot Smears Chomsky, Herman, Peterson, Pilger And Media Lens.