UBS losses prove need for British banking reform: minister

BIRMINGHAM: The $2.3 billion loss at Swiss banking giant UBS justifies reforms of Britain's banking sector supported by the government, Business Secretary Vince Cable said Monday.

In comments that risk inflaming tensions with his Conservative coalition partners, he also said that if his Liberal Democrat party was not in the government, London would never have pushed through the changes.

"If there were any doubts about the need for radical reform, the UBS rogue trader has dispelled them," Cable told the annual Liberal Democrat conference in Birmingham, central England.

"We simply cannot have rogue institutions exposing taxpayers to the risk of exploding financial weapons of mass destruction."

A London-based equities trader, Kweku Adoboli, 31, was arrested and charged last week over the UBS losses, which arose from unauthorised speculative futures trading.

The case has raised questions over the level of regulation of the financial sector in Britain, which was tightened after trader Jerome Kerviel ran up losses of 4.9 billion euros at French bank Societe Generale three years ago.

A government-appointed banking commission recommended last week that Britain's banks ring-fence their retail operations to protect them against losses in their investment units.

Cable said the reforms, which are due to be completed by 2019, were absolutely vital to address "massive potential instability" in the economy caused by global banks operating in London.

"At present, banks are offered a one-way bet. If they gamble and win they fill up the bonus pool. And when they lose, the taxpayer pays," he said.

"The Independent Banking Commission provides a means to stop this dangerous nonsense. The commission's key findings -- to separate retail and casino banking -- must be put in place."

Cable also unveiled proposals to look at reining in executive pay by forcing firms to explain huge bonus payments to shareholders, saying he regretted the coalition government's failure to act on the issue so far.

"I regret this year that we did not secure tighter control on bank pay and bonuses. A bad message was sent -- that unrestrained greed is acceptable," he told delegates.

Cable blamed his Conservative coalition partners for blocking change, and at at a fringe meeting later, he also suggested that the banking reforms would not have gone through if the Lib Dems had not been in the government.

"The whole bank reform agenda, breaking up the banks, getting the Vickers report agreed to its implementation -- that would never have happened without us being in the coalition," he said.

"A City-dominated Tory Party would never have gone down that road."

Copyright AFP (Agence France-Presse), 2011