Britain says it will only do ‘good’ deal with banks

George Osborne - Chancellor of the Exchequer

Britain will only do a deal with banks on bonuses and lending in return for government backing if it was a “good deal,” Chancellor George Osborne said Saturday .

Osborne has led efforts by the coalition government to get the banks to agree to boost lending and curb bonuses in return for strong government backing for the financial industry, although agreement has so far proved elusive.

“I hope we can reach that settlement,” Osborne told a panel discussion at the World Economic Forum (WEF) annual meeting in Davos. “We’ll only do it if it’s a good deal, and I’m sure that applies to both sides of the discussion.”

Osborne said the proposed deal would see the banks curbing bonuses, paying more tax and boosting lending, while the British government would “make it explicit that it wants the UK to be the undisputed European home of wholesale finance and a great global centre of finance.”

Royal Bank of Scotland and Lloyds had to be part-nationalised as they ran up huge losses during the credit crisis.

The chancellor praised the Basel III agreement on bank regulation, which obliges financial institutions to raise the amount of capital they hold, but said all countries now needed to implement it quickly.


Osborne said he accepted that figures this week showing a shock fall in British GDP during the fourth quarter of last year were disappointing but said the government’s main challenge now was to persuade businesses to spend part of their huge cash pile.

“UK corporates are sitting on cash on their balance sheets worth around 5 percent of GDP, Osborne said. “What I’ve got to do over the next coming months is to persuade them to start spending that money.”

Echoing a speech to the Davos Forum by Prime Minister Cameron Friday, Osborne said there now needed to be a strong focus on making the economy more competitive.

“The challenge for the government over the next year or so is to remove the supply side obstacles to stronger growth and that is what we will be focussed on,” he said.

Osborne said there was a “silver lining” to the poor GDP figures, which was that the economy was rebalancing away from financial services towards manufacturing and exports.

In Europe, he praised the efforts of euro zone member countries to “put their own houses in order.”

But he said more needed to be done on Europe’s overall competitiveness for business by making a major push to complete the single market.

“The EU has been good at presenting the challenge to us … but the proof is going to be in the pudding,” he said. “The proof is going to be: ‘Can we actually make the EU a more competitive place to do business ?”

Source: Reuters

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