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Comply or die: banks should respect Osborne’s break-up threat

George Osborne’s threat to break up banks that try to undermine new ring-fencing regulations gives FIG investors the promise of stability — not the uncertainty that the BBA has claimed. The banks should pull up their socks and respect the new rules — or face the consequences.

UK Chancellor George Osborne’s threat to force full separation on banks that try to flout new ring-fencing rules received short shrift from some parts of the banking community. But they should stop whining and simply comply with the regulations.

The British Bankers Association, and some other observers, bleats that this Sword of Damocles approach would disadvantage global firms wanting to offer universal banking services, discouraging them from basing themselves in the UK.

Bizarrely, the BBA also reckons that the threat of full separation for banks that flout the rules also creates uncertainty for investors, which could make it harder for banks to raise capital.

It’s hard to know whether the BBA is really committed to this line or whether it has just run out of ideas. As defences go, it is pretty ragged.

Investors are faced with more uncertainty when they are not sure whether banks will try to game the system, and when they are forced to speculate about how they might do so. All banks need to do, therefore, is comply with the rules and have done with it.

The rules are there to make the financial system safer and more stable. They will take some getting used to, but they should also make investors more comfortable. The government must now focus on ensuring that their “electrified” ring-fence is sturdy enough.

At the same time, banks should be focusing on how to implement the changes with minimal disruption to customers and investors. The BBA, as the body which represents them, should be ensuring consumers that they are doing so, rather than trotting out tired arguments as to why they shouldn’t.

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