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Tuesday, December 20, 2011

A regulatory model for "too big to fail," federal government-connected U.S. banks?

Chancellor carves up RBS in bid to create ‘safer bank’

( -- by DAVID MADDOX --

CHANCELLOR George Osborne has signalled the end of Royal Bank of Scotland as a major international player and unveiled reforms to the financial services sector to prevent another banking collapse.

The Scottish bank was told yesterday that it would have to get rid of more than half of its international investment operations and instead focus on the “UK domestic market”, concentrating on high street services for consumers and small and medium sized businesses.

The announcement came as the Chancellor laid out the government’s final response to the banking inquiry chaired by Sir John Vickers aimed at protecting the UK financial services system.

Mr Osborne said RBS needed to go even further than the bank’s chief executive Stephen Hester had suggested – and it is understood his announcement yesterday came as a surprise to the bank’s board.

Just a few years ago RBS was building an international empire and was one of the biggest banks in the world, but it was laid low by the purchase of the Dutch bank ABN Amro in late 2007, just before the credit crunch hit.

The Chancellor said that as the government owned more than 80 per cent of the bank it could dictate terms. He pointed out that its value to the taxpayer is £27 billion less than when it was bailed out in 2009.

In wide ranging reforms, Mr Osborne announced a series of measures including forcing banks to ring-fence their high street operations so that any collapse in investment operations – sometimes referred to as “casino banking” – would in future not hit savings and accounts.

It will also become much harder for customers to take out mortgages, as stricter rules are brought in on borrowing, effectively ending the prospect of the return of the 100 per cent mortgage.

And banks will be required to hold equity capital of 10 per cent – some three percentage points higher than the level proposed in the international Basel III agreement – to act as a “cushion” against potential losses.

Mr Osborne said that changes to be in place by September 2013 would enable individuals and small businesses to switch banks swiftly and easily, as part of a drive to boost competition in the sector.

The move on the future of RBS puts under threat more than half the 18,900 investment jobs at RBS, although most of these are in London and none are in Scotland.

The Chancellor said RBS needed to concentrate on becoming a “stronger, safer bank, able to maintain lending to businesses and consumers”.

There is a question mark over whether RBS will have to sell its profitable Citizens retail bank in the US – if it has to concentrate on the UK domestic market.

Mr Osborne yesterday told MPs: “Our objective is to make sure what happened in Britain never happens again, that taxpayers are protected and that customers get a better service.

“We want to separate high street banking from investment banking to protect the British economy, protect British tax-payers and make sure that nothing is too big to fail.”...MORE...LINK

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