Parliament Repeats Demand That Osborne Toughens Bank Bill

The parliamentary commission scrutinizing a bill designed to make Britain’s banks safer demanded for a second time that Chancellor of the Exchequer George Osborne toughen the legislation.

Osborne should threaten to break up the entire banking industry if it doesn’t comply with rules to protect retail operations, the Parliamentary Commission on Banking Standards said in today’s report in London. The cross-party panel demanded 19 changes to the bill, including one that regulators get immediate powers to set higher leverage ratios.

The report is the second attempt to toughen the proposed laws after Osborne rejected previous recommendations. It sets up the government for criticism during a second reading of the bill in Parliament later today.

“The government’s arguments are insubstantial,” said Andrew Tyrie, a lawmaker from Osborne’s Conservative Party who also chairs the commission. “There remains much more work to be done to improve the bill.”

Osborne last month made a partial concession to the panel’s demands for a reserve power to break up the banking industry along retail and investment banking lines if it fails to adhere to laws aimed at protecting taxpayers from future bailouts. He said individual banks, rather than the industry, could be broken up under that scenario after earlier voicing opposition in November during a clash with members of the 10-member committee.

Osborne himself appointed the panel last year to look at conduct in the financial-services industry following the Libor scandal and subsequently asked to lead the pre-legislative scrutiny of the banking bill.

Properly Implemented

Successive witnesses at the panel’s hearings have expressed concern that the government’s proposals will be diluted by the banks before they are properly implemented.

Witnesses including former Barclays Plc Chief Executive Officer Martin Taylor last year said regulators should be given the extra powers and former Federal Reserve Chairman Paul Volcker, who designed the U.S. approach, said ring-fencing is too difficult to maintain because financial institutions will seek to unwind the separation over time.

Tyrie today said he wants a higher leverage ratio than 3 percent set for banks, and called on Osborne to think again about establishing in law the need for periodic independent assessment on the success of the ring-fencing rules.

The commission also called for more time to properly consider the legislation after Osborne last month said he expects it to become law within a year.

“It is highly regrettable that the government appears to be compressing the timetable and railroading the bill,” Tyrie said.

The job of overseeing the new regime will fall to the Bank of England, which is set to gain new powers for supervising banks under Mark Carney who is due to take over from Mervyn King at the helm of the U.K. central bank on July 1.