Proposed U.K. regs put the squeeze on banks

A man walks past a branch of a Barclays bank in south east London.

STEVE CHIOTAKIS: A report out today in the U.K. recommends British banks should do a couple of things to avoid a future banking collapse: Raise a lot of extra cash, and separate their deposits from trading activities.

Marketplace's Stephen Beard is live with us from London with the latest. Hi Stephen.

STEPHEN BEARD: Hello Steve.

CHIOTAKIS: How tough is this plan on those banks?

BEARD: Not as tough as the banks feared. I mean, as you say, they won't be forced to hive-off their investment banking operations which are risky, but very profitable, so this will not be a resurrection of the U.S. Glass-Steagall Act in Britain -- that was introduced in the U.S. after the Depression. Here, deposit taking and investment banking would just be ring-fenced from each other within banking organizations. The banks are going to have to, as you say, raise more capital, and the capital will cost more. This will make the business of banking more expensive and a bit more conservative which economists say would be no bad thing.

CHIOTAKIS: All right, and banks in England, Stephen -- Barclays in particular -- had been threatening to pull out of London if these regulations were too strict. Any sign that could happen?

BEARD: Well, this is only an interim report. And there's going to be a lot of lobbying between now and publication of the full report after the summer.

But Jan Randolph of IHS Global Insights says he doesn't think there will be any exodus from London.

JAN RANDOLPH: I think it's highly unlikely. The banks share prices this morning indicate that the banks have basically -- they feared the worst, but it didn't happen. And most of them are likely to stay.

The point is he says, the banks are going to be facing tighter restrictions in all the major economies where they operate if they do pull out of London, where would they go?

CHIOTAKIS: Marketplace's Stephen Beard in London. Stephen, thanks.

BEARD: OK Steve.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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