Queen's Speech: Banking Reform Bill could signal end of free banking
The Queen’s Speech delivered in parliament today outlined the government’s programme for the next 12 months.
It emerged that paying down the public debt through austerity measures and boosting economic growth are the main objectives for the government.
The government announced plans to cut regulation on businesses, increase shareholder power over executive pay and launch a green investment bank.
The Banking Reform Bill will also be enacted and will strengthen regulation of the financial services, according to the speech. It also means that many of the proposals recommended in the Vickers report for the Independent Commission on Banking, such as separating retail and investment banking operations will now be acted upon.
This will reduce the risk to taxpayers of having to fund any future bailouts of banks.
However, Kevin Mountford, head of banking at MoneySupermarket.com believes the new proposals could mark the beginning of the end of free banking as banks can no longer subsidise retail operations with profits from their investment banking business.
He said: “The Banking Reform Bill will force UK banks to ring-fence their retail operations from those of their investment arms.
“Under the new rules, banks will have to hold a higher proportion in capital as protection against potential future losses and the burden of raising these funds will most likely fall on ordinary customers.
“A further problem for consumers is the fact that the providers’ investment arms are the parts of the business that generate the most profit. If banks cannot use this revenue to subsidise their retail businesses, we could expect to see the cost of consumer borrowing driven up, and this could even signal a move towards the end of free banking as we know it.”
The government said that the Banking Reform Bill will: foster financial stability and a more resilient banking sector."
Shareholders votes on executive remuneration will now be binding under the new proposals. In the past shareholder votes, such as the one recently that led to the resignation of Aviva chief executive Andrew Moss, have been non-binding.
The Enterprise and Regulatory Reform Bill aims to create the right conditions for economic recovery and to reduce the regulatory burden on business to make it easier to hire and fire employees and to improve business confidence.
The bill includes methods to help businesses save time and money by removing unnecessary legislation and measures to help resolve workplace disputes quicker.
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