Cable slams banks for trying to slow reform

Business Secretary Vince Cable yesterday accused the country’s banks of using the euro zone crisis to resist industry reforms, as a government-appointed commission finalises plans to restructure the sector.Business and industry groups have argued that a weak domestic economy and turmoil in the euro zone mean that banks, a powerful lobby group because of the importance of London’s financial district to the UK economy, should not be burdened with extra regulation.Britain’s “Big Four” banks, Barclays , HSBC and part-nationalised lenders Lloyds and Royal Bank of Scotland , have stepped up their lobbying ahead of the Independent Commission on Banking’s (ICB) final report on September 12.The ICB is expected to back proposals made in an interim report, when it said UK banks should ring-fence their retail operations from riskier investment banking operations to protect taxpayers from future crises.“It is disingenuous in the extreme to use the current context to argue against reform. Banks are in a way trying to create a panic around something which they know has got to happen,” Cable told The Times newspaper.Cable, a former economist and a member of the Liberal Democrats, the junior party in the coalition government, has long argued for a tough line to be taken with banks.Finance Minister George Osborne, of the larger Conservative Party in the coalition, backs the ring-fence but could allow banks until 2019 to implement the plans, a timetable the LibDems believe is too long.Britain wants to avoid a repeat of the financial crisis of 2008-09, when the state spent billions of pounds to avert the collapse of Royal Bank of Scotland and HBOS, now part of Lloyds.The state owns 83% of RBS and 41% of Lloyds. Prime Minister David Cameron yesterday said he would wait for the September 12 report before saying more about the industry, but set out two key requirements.“First of all, to be lending into the real economy so we can support growth and jobs,” he told Sky News. “And the second thing, we do need to make sure that our banks aren’t taking risks that put the economy at risk,” he added.The ICB’s April interim report suggested setting up the ring-fence while preserving the structure of a holding company looking after both the retail and investment bank arms. This is designed to ensure that a bank’s core retail and business lending activities continue to function if a trading arm fails. However, Cable said he did not think the ICB’s likely proposals would efficiently tackle the problem of how to allow big banks to fail “safely” and avoid the problems that arose in 2008, when Wall Street bank Lehman Brothers collapsed, causing mayhem in the world’s financial markets.“The governor of the Bank of England and many other people have been arguing that we have to deal with the too-big-to-fail problem,” Cable added. “We can’t have big global banks with balance sheets bigger than British GDP underwritten by the taxpayer: this can’t go on, and it has got to be dealt with,” Cable added.