As anticipated by many industry experts, today’s interim report from the Independent Commission on Banking (ICB) has recommended that UK-based banks should “ring-fence” their high-street retail banking operations to keep them separate from riskier investment banking divisions.
The ICB’s report highlights the need to promote both internal stability in financial institutions, and competition in the UK banking market, after the financial crisis that led to major banks being propped up with taxpayers’ funds.
The ICB also stressed the importance of stricter capital requirements for individual banks – ensuring they have sufficient funds to weather global and national market turmoil without the need for government interference and injections of public cash.
ICB chairman Sir John Vickers said earlier today: “We believe that this would give a huge amount of additional protection and … massively reduce the probability that taxpayer resources would be needed again.”
Some commentators have expressed concerns that imposing stricter capital rules on banks could mean costs being passed on to customers through higher charges, rather than being managed through greater controls on staff remuneration and shareholder dividends.
Ralph Silva, a banking analyst at SRN, said: “We’re going to start to pay more for our products. (The banks) are going to have to charge slightly more to compensate for the extra capital that they’re going to keep in reserves.”
Publication of the ICB’s report prompted a slight increase in UK bank share prices, as it seemed to avoid some of the more extreme enforcement measures that had previously been speculated on. Mr Silva added: “Quite frankly they’re moderate changes by any definition and the banking industry in the UK is safe.”
In other recommendations, the report said Lloyds Banking Group should divest more of its outlets to address issues relating to market competition. European rulings have already forced the bank – formed when Lloyds TSB took over HBOS – to begin the process of selling off more than 600 branches and other subsidiary businesses.
Chancellor of the Exchequer George Osborne spoke positively about the ICB report, saying: “Our goal is to make sure that in future we have safer banks, but also that millions of pounds of taxpayers’ money is not spent again bailing out those banks.”
