Labour leader wants to split banks

Left-leaning Labour leader Ed Miliband warned the financial industry that if banks do not separate their retail and investment arms, a future Labour government will “break them up”.

Miliband, in an interview with the BBC, said: “This is a very clear message I have for the banks: Either they sort it out themselves – so that once and for all the High Street bank is not an arm of the casino operation – or the next Labour government will, by law, split those banks up so that once again we return to the best traditions of British banking, which is banks that serve the customer.”

His comments echo those of the former German finance minister, Peer Steinbrück, who proposed stopping any credit exchange between the two, which would stop banks from funding private equity or lending to buyouts – akin to the Volcker rule and Vickers' report.

In the UK the Coalition government has already promised to implement the full Vickers’ report by 2019. However Vickers' proposal that banks have a ‘leverage ratio’ of four percent, which limits how much banks can borrow to lend, has been watered down to the international standard of three percent.

Like Miliband, Steinbrück is also challenging for a seat at the top table as he was reportedly chosen by the German opposition Social Democrats as a candidate for Chancellor last Friday.

Steinbrück made this statement to the press in Berlin on Wednesday as he detailed his plans for regulation of the financial markets, which he called, “Regaining trust: a new attempt to restrain financial markets”.

He also proposed that there should be a pan-European financial transaction tax and a withdrawal of government guarantees for banks, other than for retail banking activity.

He also further attacked the private equity industry, labelling firms “shadow banks” – unregulated financial institutions that can operate without banking licences. 

“We are very disappointed about Peer Steinbrück's proposal,” said Ulrike Hinrichs, managing director of the German Private Equity and Venture Capital Association (BVK) in a statement. 

“Private equity firms cannot be considered as part of the shadow banking sector. It’s simply wrong to claim that private equity is not regulated and is engaged in banking or credit activities”.

Attacks by politicians on private equity are nothing new in Germany. Former chairman of the Social Democrats Franz Müntefering once famously referred to private equity firms as “locusts”, which sparked a national debate on the merits of the asset class.

Steinbrück’s comments come just months after Germany published what has been described as “strict”, draft legislation for the transposition of the controversial Alternative Investment Fund Managers’ Directive.

One Germany-based lawyer said that under its current guise the draft legislation is likely to force out smaller GPs and leave German institutional investors with fewer marketing pitches from foreign funds due to its unyielding position on non-EU funds.