Chairman's reaction to the Chancellor's speech on the Reform of Banking

“I welcome the Chancellor’s support for the Banking Commission’s recommendation to electrify the ring-fence. It is an important step in the right direction.

“The Commission now needs carefully to examine the detail of the Government’s proposals on electrification and on our other recommendations. We will report to Parliament on them.

“A reserve power to split up any bank that tries to undermine the integrity of the ring-fence will increase the chances of its success.

“Banks require discouragement from gaming the rules. They will always try to do so unless strong disincentives are put in place.

“Our approach was supported by the regulators and by members of the Independent Commission on Banking, including Sir John Vickers. The opposition has been confined to largely to the banks.

“Parliament needs to legislate now for a period long-hence, when the spotlight has shifted away from finance and banks are under less intense scrutiny.

“At that time, banks could be particularly active in testing the ring-fence and lobbying politicians to alter its design for their benefit. Electrification creates incentives against such behaviour.

“As witnesses pointed out, electrification provides greater certainty for the banks: by making the ring-fence work they avoid the risks of full separation. 

“The ring-fence can contribute to better standards in banking. But there is no silver bullet.

“In our final report, the Commission will seek to provide practical proposals across a range of areas to improve standards and culture in banks.

“Customers should be able to trust banks, employees should be able to take pride in working for them and the economy should be able to rely on them to help support growth.

“There is much to do.”