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U.K. banks expected to 'ring fence' retail arms

In this photo illustration pound coins are stacked in front of a twenty pound note.

STEVE CHIOTAKIS: The British Government today is set to unveil the biggest shakeup in U.K. banks in a generation. The change is aimed at heading off another financial crisis. The key part of the plan is to separate retail banking from riskier investment banking.

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

STEPHEN BEARD: Hello Steve.

CHIOTAKIS: Is this then breaking up the big banks that are too big to fail so they don't have to be bailed out by the taxpayer?

BEARD: No, this is halfway between that -- breaking up the big universal banks and leaving them as they are. What this plan would do is "ring-fence" the retail banking part -- the bit that's vital to the economy, holding deposits, you know, making loans and moving money around and so on. This plan would put a firewall between that and the risky investment banking -- the trading in derivatives for example. So that in a crisis, retail banking can be quickly hived off by the authorities and protected.

CHIOTAKIS: And will that Stephen actually prevent another financial meltdown?

BEARD: Well, it won't prevent a crisis. It won't prevent a big investment banking operation blowing up within a universal bank. But bank analyst Ralph Silva of SRN says it would soften the blow to the taxpayers.

RALPH SILVA: The amount that we need to save, or to rescue the banks would actually be significantly less. This is a compromise solution, and I think most of the banks will complain, but eventually they'll accept it.

And he says he thinks this could set an international trend. Other countries could follow suit. The U.S. for example with big universal banks like Citigroup and Bank of America could go for this. But he says setting up this "ring-fence" is going to be expensive. Who's going to pay? Not the bankers. It'll mean that retail banking is going to get quite a bit more expensive for the customers.

CHIOTAKIS: Marketplace's Stephen Beard in London. Stephen thank you.

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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