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    British plan bank-breakup rules

    Regulator says more power needed to keep financial system on course

    Britain’s chancellor of the exchequer, George Osborne, says banks are not meeting the needs of small businesses.
    Stefan Wermuth/Reuters
    Britain’s chancellor of the exchequer, George Osborne, says banks are not meeting the needs of small businesses.

    LONDON — Britain’s chancellor of the exchequer, George Osborne, said Monday that regulators for the first time will get the power to break up banks, hardening legislation aimed at making lenders safer. He would also open up industry payment systems.

    In a speech, Osborne said the breakup powers will be added to the banking reform bill to be presented to Parliament this week. Authorities would be able to split up an institution that does not abide by rules to insulate retail operations from investment banking. Bank payment systems would be regulated to make the system more responsive and allow new entrants into the industry.

    ‘‘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,” Osborne said, according to a text released by his office. ‘‘Banks found ways to overcome and get around the rules. Greed overcame good governance. We could see that again, so we are going to arm ourselves in advance.’’


    The tougher approach marks a change of stance by Osborne, who said as recently as November that he feared jeopardizing a consensus developed in the past two years. Since then, Osborne has come under pressure from lawmakers in both Prime Minister David Cameron’s coalition government and the opposition Labour Party to do more after the Libor-manipulation scandal intensified.

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    The British Bankers’ Association, the industry lobby group, said the new plan would mean banks would have less to lend.

    The revised legislation being presented this week won’t specify what would trigger an intervention. That will be identified later. Osborne also said he will introduce detailed proposals for overhauling bank payment systems.

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

    The banking association’s chief executive, Anthony Browne, said the bank breakup plan threatens London’s attractiveness as an international financial center.


    ‘‘This will create uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses,’’ Browne said in an e-mail. ‘‘What banks and business need is regulatory certainty so that banks can get on with what they want to do, which is help the economy grow.’’

    Osborne’s shift also marks a victory for the Parliamentary Commission on Banking Standards. Osborne clashed in November with members of the 10-member committee, which he himself appointed last year to look at conduct in the financial-services sector following the Libor scandal.

    Osborne said he expects the legislation being introduced Monday to become law within a year. The job of overseeing the new regime will fall to the Bank of England, which is set to gain new powers for supervising banks.

    Osborne said he wants Royal Bank of Scotland Group PLC, Britain’s biggest publicly owned lender, to pay any fines for Libor manipulation from its bonus pool. In the United States, the Royal operates Citizens Financial Group.

    RBS may pay $785 million to US and British authorities to settle the Libor claims, two people familiar with the matter said Jan. 29.


    Osborne said Monday that Libor and the improper selling of interest swaps by banks confirm the need for tougher action in order to quell the anger felt by many voters following the financial crisis that began in 2007.

    ‘‘I understand that anger,’’ he said. ‘‘I feel it too.’’