Osborne welcomes ‘ring fencing’ solution to banking crisis

CHANCELLOR George Osborne has welcomed the initial findings of the Independent Commission on Banking, which has called for the retail and investment functions of UK banks to be ‘ring fenced’ from one another.

“I welcome the excellent analysis in this interim report and look forward to receiving their final report later this year,” Osborne said in a statement.

The commission said banks should ring-fence retail operations to safeguard them from riskier investment activities.
The commission stopped short of calling for a break up as had been demanded by some critics of the banking sector’s role in the credit crunch.

The commission, which publishes its final report in September, was set up by the government last June to review UK banks after the financial crisis.

It said today that in the build-up to the crisis, lenders and borrowers took on “excessive and ill-understood risks”, and there was still too much risk taking by banks.

Banks should hold more cash in reserves to cover their liabilities in times of crisis, and that creditors, not taxpayers, should be liable for any losses.

It said it was looking at forms of “retail ring-fencing” under which retail banking would would be carried out by a separate subsidiary within a wider banking group.

The added costs of such a regime would be more than offset by the benefits of “materially reducing the probability and impact of financial crises,” it said.

Lloyds Banking Group should sell off many of its branches to increase competition on the High Street, it said.