Today Britain’s finance chief -- or Chancellor of the Exchequer -- George Osborne launches his new Banking Reform Bill which contains a measure to force banks to keep their retail business separate from their riskier, investment banking operations.
The idea behind this “ring-fencing” is that if an investment bank runs into trouble, the retail arm with its checking accounts, personal loans and ATM's , won’t necessarily be affected. Taxpayers may not therefore be required to bail out the whole bank because of a threat to the financial system.
Osborne said today that this measure would be given teeth. Or to use another metaphor: The ring-fence will be "electrified." If the banks try to evade the new rules, they will be broken up.
Ralph Silva, an analyst with SRN consulting says the U.S. should follow suit:
“American regulators must be given that power. They need to be the highest court in the land, they need to be the strongest policemen because the financial services is critical to the safety and secuirity of America,” claims Silva.
Britain’s planned reform will take the U.K. back to where the U.S. used to be before it repealed the Glass-Steagall Act in the late 1990s. The Act, introduced after the Depression, separated retail from investment banking.