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U.k. To Push Bank Restructuring To Isolate Investment Arms

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June 24 (Bloomberg) -- The U.K. Treasury is working on plans to push banks to restructure, insulating them from failure of their investment banking divisions, two people with knowledge of the plans said.

The Treasury wants to protect banks’ deposit-taking operations after it was forced to rescue Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. Others including HSBC Holdings Plc and Barclays Plc will be asked to ring-fence their investment banking units in order to make it easier to wind them down without triggering systemic panic, the people said.

The proposals will be spelled out next week when Chancellor of the Exchequer Alistair Darling proposes rules that would overhaul the way the U.K. polices the financial services industry. Prime Minister Gordon Brown has said the industry’s culture must change to prevent financial crises.

“We are going to have to grasp the issue of actually splitting off the casinos from the traditional kind of utility banking, something the government is very reluctant to embark upon,†Vince Cable, a lawmaker who speaks on economic policy for the opposition Liberal Democrats, said on BBC radio today.

“The big banks involved, which are HSBC, Barclays and the nationalized RBS, are putting up a very strong resistance to doing this, but in the interests of the British economy, and we’ve just suffered enormously from this, it really has to be dealt with,†Cable said.

King’s Pressure

Bank of England Governor Mervyn King last week said the government couldn’t keep on extending guarantees to banks that were too big for the U.K. Treasury to bail out.

“We face some uncomfortable choices about the structure and regulation of our banking sector,†King said on June 17. “If some banks are thought to be too big to fail, then, in the words of a distinguished American economist, they are too big.â€

Last week, the European Union and the U.S. presented plans for a sweeping overhaul of financial regulation, sharpening scrutiny of banks and the risks they take.

The Treasury would leave enforcement of the plan to the Financial Services Authority. King, who last week likened investment banking to a “casino,†will publish his proposals for U.K. banks on June 26, before the government’s plan is released, the Times newspaper reported today.

The Treasury will use existing rules to force the change, although new legislation may be needed if banks fail to restructure, the people said.

£ up on the news.

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Of course the banks dont like it.It takes away their no lose situation thanks to taxpayers.Its madness that banks can speculate with deposits.I for one hope this goes through.Cable as ever is bang on the money.

If the banks want to speculate fine.Let them in a ringfenced off-shoot.If it goes down the rich backers lose their shirts,not the pensioner with their life savings on deposit.

The present situation is ridiculous.Its like one of us going to the races putting all our money on a horse.It wins i walk away.It loses all the other people give me it back to bet again.

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