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Ring-fenced bank arms to protect taxpayers

Ring-fenced bank arms to protect taxpayers

Category: Banking

Updated: 14/12/2012
First Published: 15/06/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Government plans to force banks to ring-fence their retail operations from investment banking will better protect consumers, it has been suggested.

In a speech later today, George Osborne will tell the banks to rearrange their operations so that their branches, savings, loan and mortgage books will not be impacted if their investment arms hit trouble.

The Chancellor will also reveal his intention to privatise Northern Rock.

The decision to ring-fence bank operations comes after the Government was effectively forced into bailing out Royal Bank of Scotland, Lloyds Banking Group, Northern Rock and Bradford & Bingley during the financial crisis.

It is hoped the move will help avoid the situation in the future where billions of pounds of taxpayers' money has to be used to prop up the banks.

"This reform should ensure that consumers' money is better protected and that we're less likely to face a situation where taxpayers foot the bill for the failures of the banking system," said Which? chief executive, Peter Vicary-Smith.

"Ring-fencing retail banking is a key step towards allowing banks to fail without bringing down the rest of the economy."

Northern Rock was nationalised in February 2008, but it appears the Government is now ready to put the former mutual back into private hands.

Northern Rock's operations have already been split into a so called 'good bank', which includes customers' savings accounts, and a 'bad bank', which contains the toxic loans that helped get it into trouble.

The good bank is set to be sold, while the Treasury will keep hold of the bad bank.

"The privatisation of Northern Rock is a golden opportunity to inject some much-needed competition into the banking sector," said Mr Vicary-Smith.

"The Government should apply a public interest test to the sale of Northern Rock and Lloyds branches to ensure that it will genuinely benefit consumers."

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