Osborne ‘will call banks’ bluff over UK quit threat’

Chancellor George Osborne will call the bluff of banks that have threatened to quit the UK if a report today recommends they should be broken up, according to a newspaper report.

Big banks, including HSBC, Barclays, and Standard Chartered, have hinted they could leave London if the Independent Commission on Banking (ICB) suggests measures that drive up the cost of being based in the UK, according the Sunday Times.

The ICB, which is investigating how to stabilise the sector and avoid future bailouts, could call for banks’ retail arms to be split from their investment arms in a move insiders say would make it cheaper to relocate overseas.

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But a Treasury insider told the newspaper that Mr Osborne thinks it unlikely that any bank would leave this country.

He said: “We take much of this with a pinch of salt. Nobody is leaving things the way they were before the crisis.

“If Bob Diamond is serious about taking Barclays to New York, he should listen to Jamie Dimon of JP Morgan, who has been complaining about the new regulatory framework there.

“Does anybody really think HSBC would want to go to China? There are all sorts of reasons why that isn’t going to happen.”

The commission was set up last June to conduct a review after the financial crisis left Britain with one of the most highly concentrated retail banking markets in the world, with the top five groups accounting for 85 per cent of UK personal current accounts and 70 per cent of savings accounts.

Its initial findings, which will be made public this morning, are likely to conclude that allowing Lloyds Banking Group to take over HBOS was a mistake because it left the bank with too much market share, said the newspaper.

It could recommend that taxpayer-backed Lloyds, which has 30 per cent of personal current accounts and 21 per cent of the savings market, should sell more branches.

The commission is also expected to outline several recommendations, which will narrow down before its final report in September, it was claimed. It is expected to suggest that savers should outrank other creditors in the event of a bank going bust. This would mean bondholders would see their loans converted into shares to cut the risk of tax payer bailout.

The report could also call for banks to isolate their UK businesses in separate companies backed by their own capital and place all key operations, such as payment systems into a ring-fenced company that could still operate even if the bank went under.

Other suggested measures to boost competition, such as making it easier to switch accounts and making pricing more transparent, are also thought to be on the cards.

The Treasury declined to comment.

The Chief Secretary to the Treasury, Danny Alexander, denied that there was any “tension” between the Tory and Liberal Democrat coalition Government partners over the extent of any break-up between investment and retail arms.