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UK Banking Reform Bill: George Osborne’s speech in full

UK Chancellor George Osborne gave a speech yesterday on banking reform in Britain.  Widely quoted extracts from the speech have been posted in today's news headlines but, for those who like to make their own mind up, it's worth reading the whole speech in full.  So, here it is:

Thank you
for welcoming me to JP Morgan here in Bournemouth.

When you
think about where to give a speech on culture and ethics and the future of
British banking, the offices of one of the world’s largest American investment
banks may seem like an odd choice of venue.

But it’s a
deliberate one.

For the
four thousand people who work here are, each one of you, a reminder that when
banking works, it works for the families and communities of the whole of

You, each
one of you, are a reminder that when we attract international firms to our
country – firms that could go anywhere in the world to do their business –
those firms bring jobs, and investment and prosperity.

That for
every one of the people employed here at the largest business in Dorset, there
are many more employed in the businesses that support this office, in the shops
that take your custom, and in the local economy that has grown stronger on your

I’m going
to see two of those businesses after I speak here – a catering company and a
landscaping business called Stewarts.

Four of
the employees at that landscaping business work full time on JP Morgan site,
jobs that wouldn’t exist without your presence.

From JP
Morgan, one of the world’s biggest companies, to Stewarts landscaping,
Bournemouth teaches us that Britain should continue to aspire to be a home to
the world’s financial services.

And what
is true for Bournemouth is also true of Bristol, and Edinburgh, Leeds, Cardiff,
Birmingham and Manchester.

In all
these cities, financial services are some of our largest and most innovative

And it’s
true about London too – and the City of London.

have created in the City something extraordinary – a global centre of finance.

The global
centre of finance.

its insurance and accountancy, shipping and legal services, hedge funds,
private equity, asset management or investment banking, when the world wants to
transact – it wants to transact through London.

And we
want to keep it that way in the years ahead.

That’s why
it’s been good to see Britain and London maintain its number one spot as the
home of global financial services.

That’s why
it’s been exciting to see the first Renminbi bond issued anywhere in the world
outside of Chinese sovereign territory issued in London in the last twelve

For that
is not just good for their future, it’s good for ours too.

It’s how
we will win in the global race.

It’s what
I am personally determined to achieve.

And part
of having a successful financial services industry is having successful British
banks, who want to lend at home and compete around the world.

Think of
some of the most important moments in your life.

When you
bought your own home with a mortgage.

When you
took the plunge and started your own business.

When you
retired and drew on your pension.

On each of
those occasions, you relied on the financial system and put your trust in them

That is
why it’s so important to have that trust reciprocated and a banking system that
works for you.

And that
is what I’m working night and day to deliver for you.

Like all
this Government’s reform – to welfare, to the economy, to schools and to
banking – we want to back aspiration and be on the side of those who want to
work hard and get on.

principles are simple: if you do the right thing, government should support and
help you, and remove the barriers in your way.

If you do
the wrong thing, you should take responsibility for your actions.

And sadly,
nowhere have these simple principles been broken more clearly and indefensibly
than in our banking system over the last decade.

behaviour was rewarded, failure was bailed out, and the innocent – people who
have nothing whatsoever to do with the banks – suffered.

For many,
the financial crash was confirmation of what they felt about our society: that
those who are only out for themselves get away with it; and those who work hard
and play by the rules get punished.

That is
why, five years on from that crash, people are still so angry.

And when
people discover more about what went so wrong: the mis-selling of interest rate
swaps to small firms who went bust as a result; the greed and corruption on the
LIBOR trading floor.

They get
angrier still.

understand that anger.

I feel it

But anger
can be a negative, destructive thing if it is not channelled into change.

Change for
the good.

Any bunch
of politicians can bash the banks, chase the headlines, court the populist

But what
good would that do our country?

The jobs,
the investment, the banking system we all need would go with it.

Let’s take
the anger we feel about the banks and turn it into change to build the banking
system that works for us all.

That is
precisely what we are doing.

through the work we’ve done, the expert help we’ve enlisted, we can make 2013
the year of change in our banking system.

2013 is
the year when we re-set our banking system.

So the
banks work for their customers – and not the other way round.

So that
those who guard over the banks to keep our economy safe are the right people
with the right weapons to do the job.

And so
that when mistakes are made, it’s the banks and not the taxpayer that picks up
the bill.

Let me
explain how.

Let me
tell you about the four concrete things that are going to change this year.

we’ve got a brand new watchdog with new powers to keep our banks safe so they
don’t bring down the economy.

we’ve got a new law to separate the branch on the high street from the dealing
floor in the city to protect taxpayers when mistakes are made.

we’re going to start, with the industry, changing the whole culture and ethics
of the business, so they work for you.

we’re going to give customers the most powerful weapon of all: choice.

choice about who you bank with – and choice to change who you bank with if you
want a better deal.

Let me
take each in turn.

protecting our economy by keeping our banks safe.

decision taken by the last government to divide responsibility for financial
stability from banking supervision was one of the worst economy policy mistakes
of the modern era.

The Bank
of England was stripped of its responsibility for keeping the banking system

Financial Services Authority was only focussed on compliance, with a myriad of
individual rules, and missed the wood for the trees.

Treasury’s banking division was run down.

No-one saw
it as their job to monitor risks across the whole system.

So no-one
spotted the increase of debt.

total debt reached five times the size of the entire economy.

The fire
alarm was ringing when Northern Rock handed out 120 per cent mortgages.

The fire
alarm was ringing when the Royal Bank of Scotland made its reckless purchase of
ABN AMRO, after the credit markets had already seized up.

The fire
alarm was ringing, but no-one was listening.

And when
the crisis hit, the fire was then so great that the whole economy was
sacrificed to put it out.

Ten per
cent of the entire wealth of this country was lost.

of thousands of people lost their jobs and their livelihoods.

Yes, those
responsible should be held to account.

British people need to know that lessons have been learnt.

And they have.

April, the FSA is being abolished.

April, the Bank of England will be in charge of keeping our financial system

With the
authority that comes from its history, and the new powers we have given it for
the future, the Bank of England will be the super cop of our financial system.

The Bank
is ready.

logistics are in place.

And from
day one, we will have a powerful new watchdog with real teeth.

Not just
to intervene and stop individual wrong doing.

But the
power to make a judgement call about the whole system – the power to spot
increases in debt or warn of risky practices.

The power
to call time before the party gets out of control.

But also
the power to support the economy if credit conditions get too tight.

The Bank
of England won’t be just empowered to protect us from the excesses of a banking
boom, but also to help the bank support us in a bust.

And we’re
also creating from April a strong new conduct regulator, the FCA, to ensure
London and the UK have the best, most open, and transparently policed markets
in the world.

That will
win business for Britain, attract investment.

through the Funding for Lending scheme, we’re giving banks incentives to boost
lending to families and businesses.

already seen the availability and cost of borrowing coming down, but we are
monitoring it closely to ensure that rates and availability continue to improve.


with real teeth.

markets with clear rules, properly policed.

support innovation.

For the
industry that suffers most when something goes wrong in finance – is finance

this year we’re going to start separating the high street banking we all depend
on from the City trading floor.

When the
RBS failed, my predecessor Alistair Darling felt he had no option but to bail
the entire thing out.

Not just
the RBS on Britain’s high streets, but the trading positions in Asia, the
mortgage books in sub-prime America, the property punts in Dubai.

I want to
make sure that the next time a Chancellor faces that decision they have a

To keep
the bank branches going, the cash machines operating, while letting the investment
arm fail.

No more
rewards for failure.

No more
too big to fail.

No more
taxpayers forking out for the mistakes of others.

The same
rules for the banking business as any other business in a free market.

When the
Government came into office, there was no agreement about how this massive task
would be achieved.

That’s why
we spent two and a half years painstakingly building a consensus on the future
structure of our banking industry, working with leading experts and Members of
Parliament and I want to thank Vince Cable for his help in doing that with me.

The work
that Sir John Vickers and his Commission has done has won respect all around
the world, and has already influenced the European debate.

Today, we
published the legislation that will turn their ideas and this consensus for
change into law.

A law for
the first time ever, to separate the retail and investment arms of banks, and
erect a ring fence around the retail bank so its essential operations continue
even if the whole bank fails.

sending the legislation to the House of Commons today and I expect them to be
passed by Parliament this time next year.

It won’t
mean banks won’t make mistakes.

But it
does mean that if they do, those parts of the banking system that are vital for
families and businesses can continue without resort to the taxpayer.

Today, we
will go further than previously announced, enshrining in law these simple

I can
announce that your high street bank will have different bosses from its
investment bank.

Your high
street bank will manage its own risks, but not the risks of the investment

And the
investment bank won’t be able to use your savings to fund their inherently
risky investments.

My message
to the banks is clear: if a bank flouts the rules, the regulator and the
Treasury will have the power to break it up altogether – full separation, not
just a ring fence.

We’re not
going to repeat the mistakes of the past.

In America
and elsewhere, banks found ways to undermine and get around the rules.

overcame good governance.

We could
see that again – so we are going to arm ourselves in advance.

In the
jargon, we will “electrify the ring fence”.

I want to
thank Andrew Tyrie and the fellow members of the Banking Commission we
established for help developing this important new idea.

Let’s get
on and pass it all into law.

Let me
turn to the third force for change – a change in the culture and ethics of the
banking industry itself.

I have to
say nowhere is this more keenly appreciated than in the responsible parts of
the financial community itself.

You here
work hard in a great business.

service customers all over the world.

You don’t
want the name of your whole industry to be besmirched because of the crimes of
a few.

And nor do

That’s why
the LIBOR scandal is about far more than atoning for the mistakes of the past.

It’s about
becoming a catalyst for change in the future.

We know
what happened.

From 2005,
traders, brokers and bank officials attempted manipulation of one of the most
important reference rates in our economy – a rate which affects the mortgage
payments and loan rates of millions of families and hundreds of thousands of
firms, large and small.

submitting false rates for no motive other than greed.

their Libor submissions to conceal how vulnerable their banks really were.

Years of
manipulation, in twenty banks on three continents.

Over a
billion pounds of fines have already been applied worldwide.

And we
still haven’t seen the full extent of it – more revelations will come.

expecting reports into what happened at RBS very shortly.

I expect
there will be even more public anger – if that’s possible.

But anger
is not enough – we need to channel the anger into change.

And I want
to do the right thing for the hundreds of thousands of people in the banking
sector – like you – in all parts of our country who do conduct themselves with
professionalism – and make sure the reputation and standards of the industry
are restored.

manipulation happened in many countries.

But no
country has responded as quickly as decisively as we have now done.

people have broken the law, the authorities will have all the resources they
need to make sure they are punished.

changed the system I inherited so that fines paid by banks for wrongdoing go to
good causes not back to the industry – I have already announced that £35
million pounds of Barclay’s fines will go to British Armed Forces charities to
help those who fight on all our behalves.

The first
million has been allocated to the Fisher House Project, which will help the
families of wounded soldiers being treated at the Queen Elizabeth Hospital in
Birmingham to stay close by.

And we’re
now stepping in to regulate previously unregulated markets and we’re making it
a criminal offence to make misleading statements about LIBOR.

that was not the case before.

And as we
approach bonus season let me say this.

country now has the toughest and most transparent pay regime of any major
financial centre in the world.

bonuses fell by almost two thirds last year, and are less than a quarter of
their peak before the crash.

should exercise restraint and responsibility, but it’s important to remember
that the vast majority of people in the banking sector – like the people in
this room – do not receive million pound bonuses.

We all
know there are Libor investigations ongoing into RBS in both the UK and the US.

Any UK
fine will benefit the public.

And when
it comes to RBS, I am clear that the bill for any US fine related to this
investigation should on this occasion be paid for by the bankers, and not the

But the
change to the culture and ethics of banking go beyond bonuses and fines.

I believe
we need proper professional standards in the banking sector – just as we have
for doctors and lawyers.

I want to
see the industry take pride in those standards, as our medical and legal
professions do.

And I want
to see how we can strengthen the sanctions regime for senior bankers – for
example, should there be a presumption that the directors of failed banks do
not work in the sector again?

I have
asked the Parliamentary Commission to look at how to improve the professional
standards and culture of the banking sector.

Their work
is underway and will report in the spring.

I would
encourage the Commission to come forward with far reaching proposals.

The fourth
and final change we need to banking is more choice.

Choice is
the most powerful tool we have to improve markets and customer service, reward
good companies and penalise poor ones.

Yes, our
new regulator can pick up the pieces from the interest swap mis-selling or PPI.

Yes, I
believe we must do much more to expose hidden charges and remove the conflicts
of interest that plague too much so called independent financial advice.

But I also
want to see more banks on the high street, so customers have more choice.

One of the
prices we’re paying for the financial crisis is that our banking sector is now
dominated by a few big banks.

It verges
on an oligopoly.

75% of all
personal current accounts are in the hands of just four companies.

I want new
faces on the high street.

I want
upstart challengers offering new and better services that shake up the
established players.

We’ve made
a start: with the sale of Northern Rock to Virgin Money, and the proposed sale
of Lloyds branches to Co-op.

seeing new banks like Metro Bank on our high streets – but I want to make it
easier to start a small bank and grow the business.

This year,
in 2013, we’re taking a huge step towards making that happen – by making it
easier for customers to move banks if they can get a better deal elsewhere.

September this year, every customer of every bank in Britain will be able to
switch their bank account from their existing bank to another one in seven

All they
will have to do is sign up to a new bank – and the rest will follow.

All the
direct debits, the standing orders, everything will be switched for you with no

This is a
revolution in customer choice.

But today,
we will go further.

systems sit at the heart of the banking system.

They are
the hidden from view wirings that operate every time you get wages paid into
your bank account, deposit a cheque or withdraw money from an ATM.

It’s how
the money flows around the system.

And it’s a
bit like the electricity grid, every person and every business needs to be
plugged into them to enter the banking market.

At the
moment, a new player in the industry has to go to one of the existing big banks
to use the payment system.

your rival to provide you with the essential services you need at a reasonable
price is not a recipe for success.

And it
other walks of life, like telecoms, we don’t operate like that.

There are
no incentives on the big banks to deliver new and better services for users –
like saving the cheque or creating new services like mobile payments.

Why, in
the age of instant communication, do small businesses have to wait for several
days before they get their money from a credit or debit card payment?

It should
be much quicker.

Why do
cheques take six days to clear?

and businesses should be able to move their money round the system much more

Why is it
that big banks can move their money around instantly, but when a small business
wants to make a payment it takes days?

The system
isn’t working for customers, so we will change it.

I can
announce today that the Government will bring forward detailed proposals to
open up the payment systems.

We will
make sure that new players in the market can access these systems in a fair and
transparent way.

The last
Government let the established players off the hook by failing to implement the
conclusions of the review they themselves commissioned, and allowing the big
existing banks to regulate themselves.

Government will make sure payment systems serve the needs of consumers, not the
needs of the established banks.

working for their customers, not themselves.

money protected.

guardians of financial stability with the tools they need to keep us safe.

On all
these fronts, we are making major changes.

financial industry that is strong, successful and inspires the pride of all
those who work for it.

what Government should be about – taking the big tough decisions because
they’re right for the long-term good of our country.

country has paid a higher price than any other major economy for what went so
badly wrong in our banking system.

The anger
people feel is very real.

Let’s turn
that anger from a force of destruction into a force for change.

that will give us a banking system that will work for us all.

In 2013,
thanks to the changes we are making, that goal is in sight.

Speech and video reproduced fromt the UK's Daily Telegraph.

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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