Royal Bank of Scotland, Lloyds and Barclays shares soar despite ‘crackdown’ on banks

Investors piled into Britain’s biggest banks today as the City saw little to fear in Chancellor George Osborne’s apparent crackdown on the financial sector.

Royal Bank of Scotland, Lloyds and Barclays also surged up the FTSE 100 amid reports that Singaporean investment fund Temasek and a consortium led by former Standard Chartered chief executive Lord Davies are among buyers eyeing a swoop for a major chunk of the taxpayer’s 39% stake in Lloyds.

The Government’s official response to the Parliamentary Commission on Banking Standards endorsed criminal changes and the threat of jail for “reckless” bankers. But the Chancellor threw out attempts by the Commission to lift leverage ratios — the amount of equity they hold as a share of their balance sheets — beyond the 3% minimum planned under incoming Basel III rules.

Raising the leverage ratio would increase costs for banks although the Commission was concerned that the 3% level was “too low”. The Commission had also pressed for the Bank’s financial policy committee to have the power to set leverage ratios and condemned the Government’s decision to delay a review of this potential move until 2017. The report said “the leverage ratio is a complex and technical decision best made by the regulator and it should certainly not be made by politicians”.

Barclays shares added 6.8p to 298.3p today, Royal Bank of Scotland roared 12.5p higher to 289.3p and Lloyds added 1.76p to 66.38p.

Despite the Chancellor’s refusal to budge on the leverage ratio, the Chancellor said the bank would work with regulators to ensure bankers’ pay is aligned with their performance.

The Chancellor said: “Cultural reform in the banking sector marks the next step in the Government’s plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth.”

Business Secretary Vince Cable added: “If we’re to get our economy back on track, we need to get the banking system back on track first. Creating new powers to jail bankers who are reckless with other people’s money and getting more competition into banking is a start.”

Jim Armitage, Deputy City Editor

When the launch of “tough new curbs” on banks is greeted by a rise in their share prices, the public is rightly suspicious. Shares in our biggest banks roared up today after investors read the leaked details of George Osborne’s new regime.

What the bankers liked was that the Chancellor rejected the Banking Commission’s call for further limits on banks’ leverage, the amount they are allowed to bet compared with their size.

However, still intact are the sensible reforms creating a criminal offence of “reckless misconduct” in the management of a bank and tighter controls of pay and bonuses.