Business secretary Vince Cable has called on the Independent Commission on Banking to demonstrate that ring-fencing retail banking activities would be as effective as the full separation of retail and investment divisions.
The ICB’s interim report, published in April, recommended banks ring-fence their retail banking arms. The commission, led by Sir John Vickers, is due to publish its final report in September.
In his Mansion House speech last month, Chancellor George Osborne endorsed the proposals set out in the ICB’s interim report.
Cable, speaking at the Which? banking reform debate in London this week, said he would prefer to see the full separation of retail and investment banking and asked the commission to defend its approach.
He said: “I have confidence in an independent commission of exceptional quality, but it now has to provide convincing answers to some critical questions. The Government will be seeking reassurance from the final report to demonstrate that a ring-fence can be as effective as full separation at a lower cost.”
John Charcol senior technical manager Ray Boulger says: “I am not convinced that either solution will make much difference. Counterparty risk, created when banks interact with each other, is the problem.
“Whether that counterparty risk sits within a subsidiary of your organisation or within a totally different organisation is totally irrelevant. Banks will still be exposed to that risk.”