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News Article

Bill lays out reforms to the way banks work

Published 15 October 2012 by

The Government has now published its draft Banking Reform Bill, laying out reforms designed to make the banking industry more stable and more competitive.

The banking crisis really highlighted the problems with the 'old' system - and the damage it could do to the UK's economy. The changes in this Bill are supposed to make the really important banks safer.

They should:

  • Make it easier for banks to cope with big losses,
  • Make it easier (and cheaper) to sort them out when they run into trouble, and
  • Make excessive risk-taking less attractive.

One of the biggest changes in the draft Bill is 'ring-fencing': making sure the standard high-street side of the banks is protected against the fall-out from problems in their investment activities (often called 'casino banking').

The idea is to make sure banks can keep on providing individuals and small-to-medium businesses with bank accounts and other vital services, even when another part of the bank has been allowed to fail.

Experts agree that when banks know they can't rely on an 'implicit taxpayer guarantee' of a bail-out, they're less likely to take big risks.

What happens next?

This is just a draft Bill. Before it can 'formally' go to Parliament, it'll go to the Parliamentary Commission on Banking Standards, who'll have until December 18th to look through it, talk to banking experts and prepare their report.

The Government wants to have all the legislation ready by the end of the Parliamentary year, although banks won't have to comply with all the new rules until the end of 2019.