Banks will have to ringfence their UK retail banking activities under plans from the Independent Commission on Banking.
This week, the ICB published its interim report on reforming the banking system.
The commission, led by Sir John Vickers, suggests that retail banking should be carried out by a separate subsidiary within a wider banking group. Banks would have to maintain minimum capital ratios and loss-absorbing debt for the UK retail bank as well as the bank as a whole but capital could be transferred across the bank.
The ICB stopped short of calling for full separation of retail banking from investment banking although Vickers says this is still being considered. It recommends that systemically important banks hold equity of at least 10 per cent compared with the 7 per cent that is recommended in Basel III proposals.
The ICB wants reforms to improve banking competition. It says Lloyds’ sale of 600 branches, required by the European Commission as part of the state bailout, should be “enhanced substantially.” It says more Lloyds’ assets should be sold either to an existing small player or a new banking entrant.
Lloyds Banking Group chief executive Antonio Horta-Osorio says a further sell-off would not be in the best interest of Lloyds customers. He says: “This option appears to be based on limited evidence and may paradoxically potentially delay a new competitor coming into the UK market.”
The commission wants to make it easier for people to switch between banks through measures such as time limits for switching, automatic redirection of debits and credits and the ability for customers to take their account number with them when they switch.