Andrew Tyrie: bank reform legislation 'so weak as to be virtually useless'

The Government’s pledge to drive through radical banking reforms cannot be relied upon after ministers watered down legislation designed to allow regulators to break up banks, the architect of the changes has claimed.

Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards (PCBS), said that legislation presented to parliament on Monday to “electrify” the planned ringfence between retail and investment banks was “so weak as to be virtually useless”.

Vigilance would be needed to ensure that the Government’s pledge to support reforms was carried through.

Mr Tyrie was speaking after the Treasury’s announcement on Monday that it is ready to adopt the majority of the proposals in his commission’s final report, including ensuring that reckless bankers face jail and 100pc clawback on their bonuses.

The Chancellor has published an 80-page response to the PBCS’s final report and declared that the “Government will implement its main recommendations”.

George Osborne added: “Where legislative changes are required we will amend the Banking Reform Bill which is currently before Parliament.”

But Mr Tyrie complained there was a marked difference to the Government’s initial welcome of proposals to give regulators the power to break up banks if they breached the division between retail and investment banking operations and the actual amendment put before MPs.
“It would barely give banks pause for thought,” he claimed.
Mr Tyrie said: “Only when the Government’s formal amendments have been laid before Parliament will we be able to assess them. The amendments put forward to electrify the ringfence demonstrate the need to remain vigilant.”
Mr Tyrie said the Government statement “falls short on a number of important points”. The Government refused to adopt his key demand for stricter leverage ratios to be imposed or to convert the Court of the Bank of England into a board.
While the Treasury agreed with the commission that it should investigate creating a “bad bank” from the Royal Bank of Scotland, it rejected the call for the “good bank” of RBS to be divided too, saying it would be too “costly, complex and time-consuming”. It also rejected the commission’s view that UKFI should be abolished and the sales handled by the Treasury.
It said Lloyds Banking Group was “better placed to return to the private sector without additional restructuring” and added that it was “actively considering options for the sale of its Lloyds shares”.
And it backed the commission’s proposals for better resourced full-time chairmen, who did not hold other directorships, to become the norm.
The Treasury said it accepted the commission’s call for a new Senior Persons Regime for regulators to license key managers.
The regime, which would be backed by tough new rules and criminal sanctions, would address the view that “too many bankers, especially at the most senior levels, have operated in an environment with insufficient personal responsibility”.
The Treasury report said: “It would be simpler legislatively and operationally to apply any reforms to the framework for regulating individuals to the financial services industry as a whole.”
The British Bankers’ Association welcomed the Treasury’s acceptance of the proposals. “Above all, what the industry needs is certainty so it can prepare for the introduction of the new regulatory system,” it said.
A spokesman for Barclays said the report “contained many sound proposals which, when implemented, will help restore trust in the industry”.
The Treasury divided its response to the recommendations into four key areas: strengthening individual responsibility among bankers; reforming corporate governance; boosting competition in the sector; and enhancing stability.
The Treasury also accepted that trading floors are too male dominated and should be more diverse. Although it won’t introduce new rules for trading floors, it “would encourage banks to consider disclosing gender breakdown in some business units and divisions as a matter of good practice”.
On competition, the Government said it had asked regulators to report on barriers to entry for alternative funding providers.