LONDON (ShareCast) - UK banks may be forced to ring-fence their investment arms from the retail or commercial operations under proposals being considered by the Treasury.
The idea will make it easier to separate and close down wayward investment
banks in an emergency without triggering a panic. The government also wants to make sure that taxpayers' money is used only to bail out the deposit-taking part of a struggler.
Banks with large investment arms could be required to hold more capital or have trading terms that reflect their higher risk, to ensure taxpayers do not foot the bill if the investment banking divisions hit trouble.
One suggestion also said to be under consideration is for banks to put the deposit- taking activities into a separate entity. The proposals are reportedly going to stop short of forcing banks to split, however.
The Treasury is also said to have selected the FSA to enforce the rules rather than the Bank of England.
This has led to concern that there could be a turf war between the agencies, though conciliatory noises from Lord Turner, the head of the FSA yesterday, suggested this may be avoided.
Addressing the Commons Treasury Select Committee, Lord Turner suggested a new committee for curtailing excessive lending by banks should be set up and chaired by the governor and have a majority of its members drawn from the Bank, but with input and research from the FSA.
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