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Retail banks to be ring-fenced as break-up is avoided

The Independent Commission on Banking has recommended the retail operations of UK banks should be ring-fenced but stopped short of calling for a complete separation of retail and investment banking.

In its interim report, published today, the commission suggests that retail banking should form a separate subsidiary within banking groups.

The ICB, headed by Sir John Vickers, also suggests banks should be forced to hold 10 per cent of capital, 3 per cent higher than the new Basel III minimum, and calls for new rules to make it easier for individuals to switch banks. In a speech last month, FSA chairman Lord Turner warned that the Basel III requirements did not go far enough.

The report wants Lloyds to be forced to sell off a greater number of branches than is currently planned. The bank is set to sell off 600 branches at present due to European Commission rules.  

The Financial Times reports that banks expect the new measures to cost around £5bn, far less than more radical options such as creating a clear split between retail and investment banking.

A British Bankers’ Association spokeswoman says: “The Commission’s proposed options will have to be considered alongside other reforms underway at a national and international level. Banks in the UK have already undergone significant change since the global crisis, including significantly increasing their capital and liquidity and establishing resolution plans, to protect depositors and to keep finance flowing, should a bank get into difficulty.”

More to follow.

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  1. Looks to me that the Independent Commission on Banking has bottled it! Letting Banks have subsidiaries is a mistake, as it only allows them to keep their present structure of market dominance. The fact is that our top six banks are far too big, and any problems with these companies causes serious structural problems, not only just in the banking sector but also in the whole of the economy, this cannot be allowed to continue.

    Lloyds TSB for example should not only be forced to sell off its investment arm, it should also be forced into demerging all of the previous entities like C&G, TSB, Halifax and even Scottish Widows. It was a serious error on behalf of previous governments both Labour and Conservative to allow these mergers to happen in the first place. The whole of the banking industry needs to be referred to the mergers and monopoly commission, as they are nothing more than a glorified cartel, competition what competition.

    The ex-bankers that are now running the FSA are making things even worse with limited advice models, designed to make Banks more profit and to rip off the general public.

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