George Osborne threatens to break up banks

George Osborne will threaten to break up banks if they flout new rules intended to prevent another taxpayer bailout of the financial system, reports The Guardian.

The chancellor’s pledge to force through changes to the industry came amid continued upheaval at Barclays , which is losing two more top executives after being hit by a £290m fine for rigging Libor, the rate at which banks lend to each other. Royal Bank of Scotland also faces a £500m fine for manipulating the key interest rate.

Osborne will publish legislation to ringfence high street banking operations from so-called “casino” investment banking arms and go one step further by handing regulators symbolically important powers to punish those banks which fail to erect the division correctly.

“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 ring fence,” Osborne is expected to say.

In his speech in Bournemouth, Osborne will not bash banks, instead blame Labour for the regulatory system that led to the bank bailout and outline changes he is making to break up the Financial Services Authority and hand more powers to the Bank of England.

“Any bunch of politicians can bash the banks, chase the headlines, court the populist streak. 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,” said Osborne.

The announcement by Barclays that Chris Lucas, its finance director since 2007, is planning to retire, came alongside an announcement that general counsel Mark Harding is also preparing to leave after 10 years. Their departures are the latest management upheaval at the bank which has also lost its chief executive, Bob Diamond, chairman Mark Agius and chief operating officer Jerry del Missier in the wake of the Libor scandal.

Lucas has health problems which have had a bearing on his decision to retire but have not affected his ability to do his job. He also faces an investigation by the City regulator about disclosures the bank made during a 2008 fundraising that prevented Barclays taking a taxpayer bailout. He will stay on until his successor is found.

The bank insists that the disclosures it made when it raised the crucial lifeline from investors, including from the Gulf state of Qatar, were adequate. Lucas is one of four current and former Barclays bankers’ being investigated.

With RBS facing a multi-million pound fine for Libor rigging, Osborne has called on the bailed out bank to use its bonus pool to pay the penalty, the majority of which will go the US regulators.

Labour’s shadow Treasury minister accused the chancellor of “rhetoric”.