Will the Banking Reform Bill Protect Us?

In the United Kingdom laws about banking tend to change very slowly. Banking is a sensitive issue; it is sensitive for those that need a robust banking system (which is most of us) and it is sensitive for those who save (which also is most of us). This sensitivity means that any change banking laws may have unintended economic consequences, for better or worse. Changes in banking regulation may be a reason for economies falling to the depths of despair or creating a bubble which also ends in disaster for many hard working people.

The behaviour of banks over the past ten years has made few very wealthy and many very poor. We elect governments to protect us, and in the past governments have been singularly scared of protecting people from the effects of bad behaviour by banks and banking. Having regard to the fact that the banking crisis started five years ago when Lehman Brothers collapsed, it is perhaps odd that it has taken so long for a government to consider and offer up new laws about banking.

The Banking Reform Bill is winding its way through Parliament backed by three years of consultation. (http://www.publications.parliament.uk/pa/bills/lbill/2013-2014/0038/14038.pdf).

The Banking Reform Bill was originally proposed in order to ring fence or protect depositors who save with a bank from having their savings used for reckless speculation. That is quite a hard thing to do, because whatever “ring fencing” is carried out, the nature of banking is that one bank lends to another while another borrows from another bank. There will always be a back gate to the ring fence, (and often a front gate too) and it is in the nature of things that these gates will be frequently left open for long periods, making the fence useful, but not secure.

The government has now proposed some 86 amendments to the Banking Reform Bill.

The government’s reforms are based on almost three years of consultation on the future of the UK’s financial sector and once complete will represent the biggest ever overhaul of Britain’s banking system.

The Government has finally woken up to the anger felt in the country that senior bankers have personally profited from recklessness and poor decision making, but have not suffered; the government proposed to introduce a new crime of reckless conduct leading to the collapse of a bank. I do not quite understand how this new crime will apply (or be applied, if at all)

I have read what the Government have published on this proposed new offence, and it seems rather light on substance. The wording may change as the bill continues through Parliament, but for now I believe that any protection given by the Banking Reform Bill, when enacted, will be illusory.

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