Page last updated at 13:58 GMT, Friday, 22 January 2010

Shadow chancellor Osborne backs Obama bank plan

London banks
UK banks may have to face curbs similar to those for US banks

Shadow chancellor George Osborne has backed US President Barack Obama's plan to break up the big banks.

He said a Tory government would not follow suit "unilaterally" but would push for an international deal to split retail from riskier investment banking.

Labour also welcomed the Obama plan but said it would not be copying it in detail as it was specific to the problems facing the US economy.

Treasury minister Lord Myners said Mr Osborne had "jumped on a bandwagon".

Mr Obama's proposals, which need congressional approval, would prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.

The proposed rules would also bar institutions from proprietary trading - investing to make a profit for themselves rather than on behalf of customers.


Lord Myners told the BBC News channel that Mr Obama's plans were specific to the US economy and the British government would not be separating investment banks from "universal banks".

It needs to be done here in Britain as part of an international agreement

George Osborne, Shadow chancellor

"He is taking the right policy responses for America and we have taken the right responses in the UK," said the minister.

But he added: "What President Obama has announced is entirely consistent with the actions we are taking, in terms of de-risking the banking sector."

The prime minister's official spokesman said it would be "premature" to comment in detail on President Obama's plans.

The G7, which was due to meet in London next week, was already due to discuss co-ordinating measures to protect the public from future bank failures and Mr Obama's plans are likely to feature.

'Get on with it'

Mr Osborne said a Conservative government would not want to replicate banking legislation from the 1930s, which separated retail banking from all investment banking, just the "riskier" end of the market.

"We don't want to return to the crude Glass-Steagal separation of retail banking and investment banking," Mr Osborne insisted.

"It's the riskiest end of investment banking, it's when they're taking risks with the bank's own money," he added.

He said President Obama's announcement would clear the ground for an international agreement to reform the system.

"The president of the US proposing this creates a lot of space for the rest of the world to come up with what will be a sensible system of rules and agreements," he said.

"It needs to be done here in Britain as part of an international agreement. We don't want to do things unilaterally that simply damage ourselves without making the global financial situation more secure."

Quizzed about the policy at en event in Gillingham, Kent, Tory leader David Cameron said banks should not be banned from any form speculation - they must still be allowed to offer currency hedging services to small firms and farmers, for example.

But what they "should not be allowed to do," he said, was large scale proprietary trading, which he described as "taking bets on future movements on their own book - not on behalf of customers but on their own book".

Vince Cable, deputy leader of the Liberal Democrats, called on the government to "get on with breaking up the banks".

"It is absolutely essential that Britain is not left behind by the US," he said.

"Britain is much more dependent on banks than America is and we are therefore much more vulnerable to banking crashes."

European banking shares have dropped after Mr Obama said he planned to limit the size of institutions and restrict risky trading.

Barclays shares dropped 6.2% and the Royal Bank of Scotland fell by 6% by late morning in London.

Mr Obama has said he is "ready for a fight" with the banks.

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