Chancellor George Osborne will set out plans for structural reform of the banking sector in line with the recommendations of the Independent Commission on Banking in his Mansion House speech next month.
The Treasury is expected to publish a white paper before Osborne’s speech on June 14.
The ICB’s final report, published in September, calls for the retail operations of universal banks to be ringfenced from their investment arms and be made to hold 10 per cent core tier one capital, more than the 7 per cent set out globally in Basel III. It also calls for banks as a whole to have a loss-absorbing capacity of between 17 and 20 per cent.
Treasury sources say the white paper will seek to push ahead with the ICB’s recommendation of “depositor preference”, which would mean in the event of a bank failure, retail customers will get their money back ahead of unsecured creditors and those who lend money to banks.
The white paper will set out details on how the ringfence will work as well as proposals for banks to be able to more easily absorb losses. In a bid to boost competition in banking, it will also propose moves to make it easier for customers to switch accounts.
Full draft legislation is expected by the autumn, with the Government committed to passing all legislation by the end of this Parliament in 2015. The reforms are set to be introduced in 2019 alongside new capital requirements for banks set out in Basel III.
A Treasury spokesman says: “These far-reaching reforms will help solve the dilemma of how Britain can be home to one of the world’s leading financial centres without exposing British taxpayers to the massive costs of banks failing.”