Chancellor George Osborne is expected to back proposals made by the Independent Commission on Banking regarding the way Britain's banks are run at his first Mansion House speech this evening. But what are these changes, and what implications might they have for the average banking customer?
“Ring-fencing retail and investment arms of the banks?” What in blazes does this mean?
In essence, this means that the banks will be set up so that their High Street branches, savings and loans operations – essentially, the stuff that you and I are utterly dependent on each and every day – will be separated from their investment wings - the allegedly greedy, irresponsible lot that got us into the great financial crisis in the first place. Hopefully, this will mean that if everything goes sour again, the average person won’t be affected quite as much.
It says here that banks should hold more capital to protect themselves against future losses. Care to explain what that’s all about?
Of course. Basically, the banks will need to keep a reserve of cash aside, so if it looks like they might be in imminent danger of being royally scuppered, they won’t have to go to the government – and subsequently, the taxpayer – to avoid going under…like banks such as Royal Bank of Scotland did last time around.
Jolly good. It’s about time that somebody got those naughty bankers to sort themselves out…
You’d think so. In the wake of the recession, banker-bashing has become a national pastime. But some have made the case that the average consumer will be the one picking up the tabs for these measures. Steven Hester, chief exec of the partly publicly-owned Royal Bank of Scotland, says that the measures could make things more expensive for customers. After all, the banks will need to get the extra cash to put in their reserves from somewhere…and it might just be from us.
Oh, right. That’s not so good.
Indeed. What we’ve also got to consider is that if the banks investment arms – the higher risk cash cows which generate the most profit – can’t subsidise the High Street divisions, then we might see more expensive loans, credit cards, overdraft facilities, and so forth.
So is this definitely happening?
Not yet. In fact, the Independent Commission on Banking hasn’t even published its final recommendations yet. But such robust reccomendations from the Chancellor means that they're now a big possibility. So, wait and see…