LONDON - British regulators will have the power to split up banks that fail to separate risky trading activity from retail banking, George Osborne, the country’s chancellor of the Exchequer, said Monday.
As part of an overhaul over how the country’s banks operate, the British finance minister said regulators would be able to forcibly separate firms that fail to maintain a division between their retail banking and investment banking units.
The so-called ring-fencing of consumer deposits from risky trading activity is an effort to reduce the exposure to the wider British economy if one of the country’s largest banks goes bust.
Many of Britain’s largest banks have been engulfed in a series of scandals during the financial crisis, and Mr. Osborne said the public was right to be angry over abuses in the country’s financial industry.
The spotlight is now focused on the Royal Bank of Scotland, which is expected to announce a settlement over the manipulation of a key benchmark rate as early as this week.
The Edinburgh-based bank, which is 82 percent owned by British taxpayers after receiving a bailout, is said to be facing a fine of more than $650 million and a guilty plea against an Asian subsidiary related to the manipulation of the London interbank offered rate, or Libor.
Mr. Osborne said troubling behavior by those in Britain’s financial industry was unacceptable.
“Irresponsible behavior was rewarded, failure was bailed out, and the in! nocent â€" people who have nothing whatsoever to do with the banks â€" suffered,†Mr. Osborne said in a speech in Bournemouth on the south coast of England.
During the recent financial crisis, a number of British banks, including Lloyds Banking Group and Northern Rock, received multibillion-dollar bailouts after they ran into trouble because of exposure to risky assets.
To reaffirm the separation between firms’ retail and investment banking divisions, Mr. Osborne said on Monday that banks would have to appoint different senior managers to oversee each division. The new powers to forcibly split up banks are in response to fears that firms would try to find ways around dividing their retail and investment banking operations.
“No more rewards for failure. No more too big to fail. No more taxpayers forking out for the mistakes ofothers,†Mr. Osborne said.
Critics of the planned changes, however, say the separation of banks’ operations will make it harder for them to raise capital and provide financial to British companies.
“This will create uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses,†Anthony Browne, chief executive of the British Bankers’ Association, a trade body criticized for its role in the Libor scandal, said in a statement.
The changes, which form part of new banking legislation, follow similar efforts in the United States and Europe to reduce the impact of banks’ risky trading operations on the broader economy. The so-called Volcker Rule, which forms part of the Dodd-Frank act and would p! rohibit b! anks from making risky bets with their money, also is nearing regulatory approval.
In Britain, authorities are going a step further by dividing the Financial Services Authority, the country’s financial regulator, into two separate units, as part of the widespread reforms.
From April, oversight of the country’s banks will be returned to the Bank of England, the central bank, while a new consumer protection agency will monitor market abuse.
The reforms follow a series of recent settlements by British banks over illegal activity.
HSBC and Standard Chartered have agreed to pay a combined fine of more than $2 billion to American authorities related to money laundering allegations. Barclays reached a $450 million settlement with United States and British regulators in June related to the manipulation of Libor. And, in total, many of Britain’s largest banks have been forced to pay billions of dollars of penalties after inappropriately selling insurance to customers.
“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system,†Mr. Osborne said Monday.
