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US bank plans 'in line with UK's' Osborne backs Obama banking plan
(about 9 hours later)
President Barack Obama's plans for US banks are "very much in accordance" with the direction Labour is setting, City Minister Lord Myners has said. Shadow chancellor George Osborne has backed US President Barack Obama's plan to break up the big banks.
Mr Obama plans to limit the size of banks and curb riskier activities. He said a Tory government would not follow suit "unilaterally" but would push for an international deal to split retail from riskier investment banking.
Lord Myners played down the issue of bank size, saying it was more of a problem for the US banking sector. 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.
But the Lib Dems urged Labour to "get on with breaking up" banks, while the Tories said they would copy the US plan to limit bank size if they won power. Treasury minister Lord Myners said Mr Osborne had "jumped on a bandwagon".
Shadow chancellor George Osborne said he would want to see international agreement before implementing any change in the UK. 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.
'Setting the tone' The proposed rules would also bar institutions from proprietary trading - investing to make a profit for themselves rather than on behalf of customers.
Under Mr Obama's proposals, announced on Thursday, retail banks would be banned from using their own money in risky financial transactions. 'Premature'
This is a welcome move by President Obama that accords very much with our thinking George Osborne, Shadow chancellor class="" href="http://newsforums.bbc.co.uk/nol/thread.jspa?forumID=7434">Should Britain follow the US lead? 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".
This would prevent them from investing in hedge and private equity funds, or engaging in so-called proprietary trading - investing their own money as opposed to that of their customers. It needs to be done here in Britain as part of an international agreement George Osborne, Shadow chancellor class="" href="http://newsforums.bbc.co.uk/nol/thread.jspa?forumID=7434">Should Britain follow the US lead? class="" href="/2/hi/business/8474046.stm">Bank stocks drop on Obama plans
"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.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.
Lord Myners said: "There is a global programme here where, once again, the UK is setting the tone of the debate. 'Get on with it'
"What President Obama is suggesting is very much in accordance with the direction we have been setting," he told Channel 4 News. 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.
"After all, we were the first to introduce a tax on bonuses." "We don't want to return to the crude Glass-Steagal separation of retail banking and investment banking," Mr Osborne insisted.
Vince Cable: "Now that Obama has done it in the States we've got to do it here" "It's the riskiest end of investment banking, it's when they're taking risks with the bank's own money," he added.
But Commons Treasury select committee chairman John McFall says the US has gone further than the British government. He said President Obama's announcement would clear the ground for an international agreement to reform the system.
"Different countries have responded to the problem in their own way, as it affects their country," the Labour MP said. "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.
"The UK has done it with a bank bonus tax. You could actually see what the UK has done as being more timid than what the US has done." "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."
'Profound fear' 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.
Mr Osborne welcomed Mr Obama's proposal, adding it "accords very much with our thinking". 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".
"I have said consistently that we should look at separating retail banking from activities like large scale propriety trading - and that this was best done internationally."
Vince Cable, deputy leader of the Liberal Democrats, called on the government to "get on with breaking up the banks".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."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.""Britain is much more dependent on banks than America is and we are therefore much more vulnerable to banking crashes."
BBC business editor Robert Peston said Mr Osborne's comments would "generate profound fear in the boardrooms of Barclays and Royal Bank of Scotland". European banking shares have dropped after Mr Obama said he planned to limit the size of institutions and restrict risky trading.
Shares in both banks fell sharply on Tuesday, with Royal Bank of Scotland losing 7% - the biggest decline on the UK's main FTSE 100 share index. Barclays lost 5.9%. 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.