MPs seek 'radical' bank reforms

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A "radical" reform of the UK banking system is needed to prevent taxpayers from picking up the bill for future bail-outs, MPs say.

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Re: MPs seek 'radical' bank reforms

Banking reform called for by Treasury Committee


MPs think some banks like RBS may have become too big to fail

A "radical" reform of the UK banking system is needed to prevent taxpayers from picking up the bill for future bail-outs, MPs have said.
The Treasury Committee said that the public would not stand for another bail-out of the banks.
The committee also urged ministers not to rule out the break-up of banks that were deemed too big to fail.
However, the committee's report does not call explicitly for a break-up of the banks.
The MPs also warned that planned moves such as living wills to wind-up banks in an orderly fashion were likely to raise the cost of credit for customers.
Radical action
The government is against splitting up major players, arguing that both "narrow" safer banks and riskier investment banks were hit by the financial crisis.
The committee isn't saying that the banks must be broken up - but simply that it was wrong of the Chancellor, Alistair Darling, to rule out that option


Robert Peston, BBC business editor



Read Robert's blog in full
Financial services tipped to grow

However, the MPs said the debate should "remain as wide as possible" and highlighted US reforms that would potentially limit the size and scope of bank activities.
The committee also questioned the ability of big banks to spread risk and called for research on whether a larger number of specialist banks could be better for the economy.
Committee chairman John McFall said "radical action" on reform was needed.
"During the financial crisis, governments have effectively stood behind the banking system," he said.
"If international banking in the UK is to remain credible, reform must ensure that the taxpayer is better protected from picking up the bill."
The committee also acknowledged that the introduction of living wills would transfer some of the risk from taxpayers to the financial sector.
"This may raise the cost of credit, but it will do so because risk is priced more accurately," the report said.
Bearing risks
Mr McFall added that the reckless lending of the boom years should not be replaced with "equally irrational restrictions" on banks, but said policymakers needed to strike a balance between changing the system and protecting consumers.
He said: "The more consumers are protected, the more risks taxpayers may have to bear; the more banks have to pay for their capital, the higher the rates they will charge their customers.
"Policymakers will have to decide where the trade-offs should properly be made and how this should be explained to the public."
BBC business editor Robert Peston, said: "To be clear, the committee isn't saying that the banks must be broken up - but simply that it was wrong for the Chancellor, Alistair Darling, to rule out that option.
"In that sense, the committee's report will be seen as embarrassing for Labour, and supportive of the Tories and Lib Dems, both of which are more sympathetic to the idea of breaking up the banks."