Five questions answered on the new banking reforms

Are we right to jail reckless bankers?

The government has today said it will back most of the recommendations made by the Parliamentary Commission for Banking Standards (PCBS). We answer five questions on the plans for reform.

What key recommendations is the government planning on implementing?

The key changes are:

There will be a new criminal offence of reckless misconduct by top bankers resulting in a possible jail sentence.

If a bank has been bailed out bankers bonuses could be repayable. Bonuses are also to be deferred by up to 10 years.

If any bank breaks any rules, the burden of proof shall lie with the relevant senior bankers to show that they took all reasonable steps to stop it happening.

What recommendations are the government not taking up?

The government did not agree to employ a much tougher leverage ration for banks, limiting the total amount of loans and investments a bank can make relative to the amount of capital the bank holds in order to absorb losses on those assets.

This would ultimately toughen limits on banks’ risk taking.

Chancellor of the Exchequer, George Osborne, has decided instead to stick to the lower level agreed and set out by the Bank for International Settlements in Basel.

The government has also refused to abolish its holding company for its stakes in Royal Bank of Scotland and Lloyds Banking Group, called UK Financial Investments. It said: "UKFI is staffed by highly expert professionals with extensive experience in the banking sector".

What else has Osborne said?

Today he said: “The government is determined to raise standards across the banking industry to create a stronger and safer banking system.

“I am pleased to say that the government will implement its main recommendations. Where legislative changes are required we will amend the Banking Reform Bill which is currently before Parliament.

“Cultural reform in the banking sector marks the next step in the government’s plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth.”

What other changes will be made?

The Prudential Regulation Authority, which is responsible for ensuring excess risks do not build up within the banking system, will be given an extra job of ensuring competition among banks.

Is the government considering any changes in the way the Royal Bank of Scotland is handled?

The government did say it would consider the PCBS’s suggestion of splitting the Royal Bank of Scotland into a ‘good’ high street bank - that can be quickly sold back to the private sector – and a ‘bad’ bank which should be kept and existing problematic loans worked out. 

Guests listen to speeches at the "Lord Mayor's Dinner to the Bankers and Merchants of the City of London" at Mansion House on June 19, 2013. Photograph: Getty Images.

Heidi Vella is a features writer for Nridigital.com

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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