Coalition Government outlines plans for banking sector reform

The Conservative and Liberal Democrat coalition Government will implement a banking levy and set up an independent commission to investigate separating retail and investment banking.

In a document outlining the agreements thrashed out by the newly-formed coalition, the parties have also promised "robust action to tackle unacceptable bonuses in the financial services sector".

They also plan to bring forward proposals to give the Bank of England control of "macro-prudential regulation".

The banking reform statement in full:

"The parties agree reform to the banking system is essential to avoid a repeat of Labour's financial crisis, to promote a competitive economy, to sustain the recovery and to protect and sustain jobs.

"We agree that a banking levy will be introduced. We will seek a detailed agreement on implementation.

"We agree to bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.

"We agree to bring forward detailed proposals to foster diversity, promote mutuals and create a more competitive banking industry.

"We agree that ensuring the flow of credit to viable SMEs is essential for supporting growth and should be a core priority for a new Government, and we will work together to develop effective proposals to do so. This will include consideration of both a major loan guarantee scheme and the use of net lending targets for the nationalised banks.

"The parties wish to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this would take time to get right, the commission will be given an initial time frame of one year to report.

"The parties agree that the regulatory system needs reform to avoid a repeat of Labour's financial crisis. We agree to bring forward proposals to give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.

"The parties also agree to rule out joining the European single currency during the duration of this agreement."