A British minister on Wednesday threatened the country's banks with punitive taxes if they fail to meet lending goals set by the government to help boost a stuttering economy. Business minister Vince Cable, a consistently fierce critic of the banking industry, said the government could consider new sanctions if the banks missed their lending targets.
"We do have the option of approaching the taxation of profits or bonuses or balance sheets in a more forceful way - that certainly is one of the sanctions open to government," Cable told parliament's business committee. Earlier this year, the banks struck a deal with the government called "Project Merlin", in which they pledged to moderate excessive salaries to staff and in return lend out more money to small businesses to boost the UK's flagging economy.
Last month the Bank of England said top banks had fallen short of those targets during in the first quarter. The Unite trade union dismissed Cable's comments as "empty threats" while other observers saw them as political posturing. Public anger against the banking industry remains high after the government had to rescue Royal Bank of Scotland and Lloyds with taxpayers' money during the global credit crisis.
RBS Chief Executive Stephen Hester on Wednesday criticised a proposal to split banks' retail divisions from their investment banking operations, saying it would make banks more rather than less risky. "I believe that creating a ring-fence increases somewhat the systemic risk and decreases the ability of banks to withstand the risk," he told parliament's Treasury Select Committee.
The separation of lenders' retail and investment arms was the main proposal set out in the Independent Commission on Banking's interim report, published in April, which suggested ways of protecting taxpayers from future banking crises. The Treasury committee is also due to interview Barclays chief executive Bob Diamond, HSBC chairman Douglas Flint, and Antonio Horta-Osorio, the newly-appointed head of Lloyds Banking Group.
Britain's Treasury also said on Wednesday banks would be allowed to reduce their use of its credit guarantee scheme (CGS), which was a key plank of the government's bailout of banks in October 2008 at the height of the financial crisis.
The CGS provided guarantees on short to medium term debt issued by banks in the wholesale markets, for a fee. It aimed to provide banks with short-term liquidity and capital to allow them to lend to the businesses and households. Banks will now be allowed to buy back and cancel the debt early, which Chancellor George Osborne said showed the sector "is clearly on the mend". RBS and Lloyds were the main beneficiaries of the scheme, which was closed to new entrants more than a year ago.