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Bankingreform:Whathaschangedsincethecrisis?
4February2013 Business

Fiveyearsonfromthestartofthecreditcrunch,thefinancialsectorisnowundermore
scrutinythanever.
Thebankingsystemwassavedfromcollapsebybillionsofpoundsoftaxpayers'money,which
inturnledtoangerthatthepublicwashavingtobailoutbankers,whowereperceivedasrisk
takingand"greedy".
Peoplewantedtoseebossesheldtoaccountandasystemintroducedwhichwouldensurethis
couldnothappenagain.
Sowhathasactuallychanged?
Payandbonuses
Bankscameunderfirefromtaxpayers,shareholdersandregulatorsovertheirpaypolicies,with
bumperbonusesseenas"rewardforfailure".
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Bankingreform:Whathaschangedsincethecrisis?BBCNews

InDecember2010,Europeanregulatorsannouncedtoughrestrictionsonthebonusesthat
bankscanpaytheirstaff.
Therulesmeantthatbankerscouldreceiveonly2030%oftheirbonusesinimmediatecash.
Theguidelinesrequiredbankstodefer4060%ofbonusesforthreetofiveyearsandpay50%
ofbonusesinshares(ratherthancash),setamaximumbonuslevelasapercentageofan
individual'sbasicpay,andpublishpaydetailsfor"seniormanagementandrisktakers".
Regulatorshavealsoencouragedbanksto"clawback"payreclaimingcompensationifan
individual'sperformanceislaternotdeemedworthyofthepay.
Severalbankshavesaidtheyhavedonethisorareconsideringdoingso.Lloydshascut2m
frombonusespaidto13executives,includingformerchiefexecutiveEricDaniels,forthe
bank'smissellingofpaymentprotectioninsurance(PPI).
JPMorganhassaiditwillclawbackasmuchremunerationaspossiblefromtheindividuals
deemedresponsibleforlossesof$5.8bn(3.7bn)fromtradingincomplexfinancialderivatives.
Thiswouldamounttoabouttwoyears'worthofpayforeachindividual.
Banklevy
InJune2010,thechancellorannouncedthatbanksoperatingintheUKwouldbehitwithalevy
anannualtaxontheirbalancesheetsinajointmovebetweentheUK,FranceandGermany.

Theideawastoraisemorethan8bnfortheTreasuryoverfouryears,withMrOsbornesaying
thatsincethefinancialcrisisbeganinbanking,itwas"fairandright"thatbanksshouldcontribute
totheeconomicrecovery.
Thegovernmentalsohopeditwoulddiscouragebanksfromrelyingonriskyformsofborrowing,
whichwereblamedformakingthefinancialcrisismuchmoredangerous.

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Bankingreform:Whathaschangedsincethecrisis?BBCNews

ThelevywasoriginallybroughtinasatemporarymeasureinJanuary2011andwassetat
0.04%.
Butsincethenithasbeenmadepermanentandatthebeginningof2012wasincreasedto
0.088%.
Thelevydoesnotaffectsmallerbanksandbuildingsocieties,andcertainitemsareexempt,
includingordinarydepositscoveredbytheUK'sdepositinsurancescheme.
Whopaysifabankfails
ThegovernmentsetuptheIndependentCommissiononBanking,ledbySirJohnVickers,with
theaimofmakingtheUKbankingsystemsafer.Itsbigideawastosetuparingfenceto
separatetheirretailoperationsfromtheirriskierinvestmentbanking.
Theretailbankbusinessesshouldhavetheirownfinancialcushions,sothattheycancarryon
independentlyincasesomethinggoeswrongwiththerestofabank'soperations.

FollowingtheVickersrecommendations,thegovernmentdraftedabillonbankreforms,the
FinancialServices(BankingReform)Bill.
AftercriticismfromtheParliamentaryCommissiononBankingStandards,apanelofMPsand
peersledbyAndrewTyrie,thatplanstoringfencethebanks"fellwellshortofwhatisrequired",
thegovernmentagreedto"electrify"theringfence.
Thismeansthatabankthatfailstoseparateitsinvestmentandretailarmswouldbebrokenup.
Aswellasringfencing,thebillwantstorankretaildeposits(butnotpensionliabilities)aheadof
theclaimsofotherbankcreditorsintheeventofabankinsolvency.
Italsowantsbankstoholdasufficientcapitalbuffersothatiftheydofail,lossescanbe
absorbed.
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Bankingreform:Whathaschangedsincethecrisis?BBCNews

ThebillhasnowgonebeforeParliament.
Regulation
SignificantchangestotheregulatorysystemoftheUK'sfinancialsectorhavebeen
announcedoverthepastcoupleofyears.
TheFinancialServicesActwillreplacethecurrentTripartitestructure,introducedbythe
previousLabourgovernment,andmadeupoftheFinancialServicesAuthority(FSA),the
TreasuryandtheBankofEngland.
TheBankofEnglandisresponsibleforkeepinganeyeonthemoneymarkets,theFSA
supervisestheindividualbanksandlooksaftertheinterestsofconsumers,whiletheTreasury
providesthepublicmoneyforthis.
Criticssaythesystemdidnotmakeclearwhowouldbeinchargeinacrisisandthetripartite
authoritiesneededtocommunicatebetterwitheachother.
Intheoverhaul,theFSAwillbeabolished,andthreenewbodiescreated,thefirsttwowithinthe
BankofEngland,toregulatefinancialservices:
theFinancialPolicyCommittee(FPC),whichhasalreadybeenformed,willhaveoverall
responsibilityforfinancialregulationintheUKfrom2013.Itwilloversee,andhavethepower
toinstruct,twonewfinancialwatchdogs
thePrudentialRegulationAuthority(PRA),whichwilltakeoverresponsibilityforsupervising
thesafetyandsoundnessofindividualfinancialfirms
theFinancialConductAuthority(FCA),whichwillbetaskedwithprotectingconsumersfrom
sharppractices,andmakingsurethatworkersinthefinancialservicessectorcomplywith
rules
Savingsprotection
Ordinarypeoplewhohavesavingshavelongbeenprotectedfromlosingtheirmoneyiftheir
bankgoesbust.
Butsincetheonsetofthecrisis,thelevelofprotectionhasmorethandoubled.
In2007themaximumpayoutfordepositorswasjust31,700perperson.Nowitis85,000,
undertheFinancialServicesCompensationScheme.
Vettingexecutives
TheFSAhasmovedtoscrutinisemorethoroughlybanks'appointmentsofchiefexecutivesand
boardmembersinrecentyears.
Theregulatorhastoapproveanyonewantingtoservein"significantinfluencefunctions"(SIF)at
financialcompanies.
Itnowusesformalpanelstointerviewmanywouldbetopexecutives.

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Bankingreform:Whathaschangedsincethecrisis?BBCNews

FormerFSAchiefexecutiveHectorSantshasadmittedthatpriortothecrisistheFSAdid
notdoenoughtoassessthesuitabilityofcandidatesortolookattheblendofindividualsona
board.
Overthelasttwoyears,39SIFapplicationswerewithdrawn"demonstrablyduetoserious
concernsidentifiedbytheFSAinterviewpanel".
OncetheFSAisreplacedunderthenewregulatorysystem,theFinancialConductAuthoritywill
beinvolvedinSIFinterviewsandwillhavetherighttovetoindividuals.

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