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UK's Osborne to Endorse Bank Ring-Fence Proposals

British finance minister George Osborne will use a major speech on Wednesday to throw his weight behind recommendations that banks' retail arms should be ring-fenced from their investment banking operations.

Chancellor of the Exchequer George Osborne holds Disraeli's original budget box as he leaves 11 Downing Street for Parliament.
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Chancellor of the Exchequer George Osborne holds Disraeli's original budget box as he leaves 11 Downing Street for Parliament.

Treasury sources said Osborne will endorse recommendations from the Independent Commission on Banking that banks structure in a way that their retail business would be unharmed if their investment banking operations hit trouble.

The banking commission made preliminary suggestions in April and will publish a final report in September.

This should give more details on the thorny issue of which assets should lie within the ring-fence and which should lie outside.

"This is a far reaching shake up to make high street banks safer and protect taxpayers," said a Treasury official. "The Government set up the banking commission to ask the difficult questions that weren't asked before the crisis and this is right at the heart of their answer."

Osborne will make his annual Mansion House address the City of London's financial elite on Wednesday — a gathering that will also be addressed by Bank of England Governor Mervyn King.

The Treasury official declined to comment on a Sunday Times report that Osborne will also use the speech to announce plans to auction off state-owned bank Northern Rock.

Northern Rock was nationalised three years ago after becoming the first major British bank in more than 150 years to suffer a bank run, and Deutsche Bank has been advising the government on how to return it to the private sector.