Banks Face Break-Up Over Risky Trading

Poppy Trowbridge, Business and Economics Correspondent

British banks face break-up if they fail to follow new rules protecting high street operations from riskier trading.

The Parliamentary Commission on Banking Standards has published a report assessing Government-backed legislation that will require lenders to protect customers' banking deposits from potential losses.

While the report suggests ring-fencing will help address the damage done to culture and standards in banking, it may not be enough to stop banks taking advantage of the rules.

Commission chairman Andrew Tyrie MP said: "The legislation needs to set out a reserve power for separation - the regulator needs to know he can use it.

"Over time, the ring-fence will be tested and challenged by the banks. Politicians, too, could succumb to lobbying from banks and others, adding to pressure to put holes in the ring-fence."

MPs are looking at ways to exert pressure on lenders that fail to comply.

Shadow chancellor Ed Balls told Sky News: "I think people are really frustrated, families, businesses, that banking reform is taking so long.

"In the meantime, our economy has not been growing, small business lending is falling. We've got to get on with it and we've got to get it right.

"The commission says the proposals on the table so far from George Osborne don't go far enough, they've been watered down, and they also are going to look at the wider issues of standards and culture in the way our banks operate."

Next year, the commission will take further evidence on whether full separation of proprietary trading operations at banks is necessary.

The Government launched an inquiry into banking standards in the wake of revelations that the London Interbank Offered Rate (Libor) had been manipulated by traders.

Barclays and Swiss bank UBS have been fined by authorities for manipulating Libor.

The rate is a reference point for vast ranges of financial contracts around the world worth around £184trn.

Mr Tyrie said: "The latest revelations of collusion, corruption and market-rigging beggar belief.

"It is the clearest illustration yet that a great deal more needs to be done to restore standards in banking."

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