Radical measures needed to lessen banks' threat, says Vince Cable

Lib Dem Treasury spokesman says it must be easier for large banks to fail without the state being forced to step in and save them

Britain's banks have become "the financial equivalent of Chernobyl" and radical safety measures are required to make them less of a threat to the country's economy, the Liberal Democrat Treasury spokesman, Vince Cable, will say today.

In a speech to the London Stock Exchange, Cable will say that major reforms are needed to the banking regulation system, including measures to make it easier for large institutions to fail without the state being forced to step in and save them.

Cable will say that there is a long-term role for state banking in the British economy, even after the current crisis has abated, and will argue against a quick sell-off of the government-owned banks.

Those banks in which the government has taken a stake should be broken up before they are returned to private ownership, he will argue.

Cable will also call for highly-paid bankers to publish details of their pay and bonuses and confirm that they are resident in Britain and domiciled here for tax purposes.

And he will repeat his calls for the Financial Services Authority to keep its role as regulator of the banking industry and for the scrapping of the government's "woefully misconceived" asset protection scheme.

Cable will say: "The government has yet to grapple with the challenge posed by the governor of the Bank of England: that if a bank is too big to fail, it is too big. One approach is to make it easier for big institutions to fail.

"Some aspects of the financial services industry are simply too big for the British economy to manage safely. The large, failed, British banks are the financial equivalent of Chernobyl. Like the former Soviet Union, the UK became over-reliant on dangerous financial reactors.

"Britain has the highest share of banking assets in GDP of any major country, four times as high as the US. To prevent Britain from becoming the next Iceland, radical safety measures, like ones I have set out, are required.

"My approach to the City is not one of hostility, or of obsequiousness. I recognise its importance. But it needs 'tough love', not the freedom to run amok."

Guardian 20/07/09