British government backs plan to restructure banks

LONDON (AP) ? The British government will restructure the country's banks by separating their retail activities from riskier investment banking operations, Business Secretary Vince Cable said Sunday.

Cable said the government will comply with the recommendations of an independent commission set up after the 2008 banking crisis and "proceed with the separation of the banks."

"It's absolutely right that we make the British economy safe," Cable told the BBC. "We just cannot risk having a repetition of that financial catastrophe that we had three years ago."

Treasury chief George Osborne is due to lay out the government's plans in Parliament on Monday. Cable told the BBC that the necessary legislation would be passed before the government's term ends in 2015.

The British government bought up large chunks of the country's banking system after it ran into major financial difficulties during the 2008 credit crunch. The British taxpayer now fully owns mortgage lenders Northern Rock and Bradford & Bingley, along with 83 percent of Royal Bank of Scotland and 41 percent of Lloyd's Banking Group.

Northern Rock, however, is due to be sold to Richard Branson's Virgin Money.

The Independent Commission on Banking recommended in September that the banks be restructured by 2019 to reduce the risks of taxpayers having to bear the cost of any future bailouts.

The commission, chaired by former Bank of England chief economist John Vickers, said retail banks should be "legally, economically and operationally separate" from the parent companies.

It also recommended that retail banks should be required to boost the amount of equity capital they hold.

The commission estimated its proposals would cost the banks up to 7 billion pounds ($11 billion) a year, and critics of the plan say it could slow lending at a time when the economy is in danger of sliding back into recession.

Associated Press

Source: http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2011-12-18-EU-Britain-Banks/id-e05f76d3d1ee4c2aa8995bbb7d5d61e9

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