Cross-party report calls for overhaul of UK banking system

The Future of Banking Commission has called for profound reform of the UK banking system in a document delivered to the government.

The Commission, which gathered evidence from regulators, consumer groups and business leaders including Bank of England governor Mervyn King, said it recommendations aim to put ordinary people and society at the heart of a reformed banking system. 

 
The cross-party Commission, chaired by David Davis MP and developed by consumer organisation Which? Comes as the result of a proposal from John McFall MP who, as Chairman of the Treasury Select Committee, wanted to ensure that the public had an opportunity to voice their opinions about the future of banking.
 
It calls for depositors to have maximum protection if banks fail and recommends the creation of accounts that are 100% guaranteed and ‘safe haven’ accounts which would only be invested in safe assets.
 
It also recommends the introduction of new competition and regulatory regimes that make bank boards responsible for both meeting customers’ needs and for their own solvency and the creation of a healthy, professional and ethical culture in financial services.
 
It would like banks to create ‘living wills’ detailing how the collapse of a bank would be managed and how customers would be treated
 
The Commission says there should be a restructuring of banks so that if they fail, it does not cause catastrophic damage to their customers or the economy and investment advice should be separated. Regulation should be used to increase competition among banks, it says.
 
Cultural changes such as senior executives being rewarded for long-term business performance and shareholder return and banks not paying sales commission to frontline staff are also mentioned.
 
‘Banks provide a vital service to the economy but fatal flaws in the structure, regulation and behaviour of the banks almost crippled the world economy in the last few years. The United Kingdom cannot afford to face such a crisis again. Nor can it afford to allow the fundamental weaknesses in its banking system to go on, precisely because the economy depends so much on an effective and efficient financial system,’ said Davis.
 
Which? chief executive, Peter Vicary-Smith, said that banks can’t be allowed to go back to business as usual. ‘We must never again be faced with a situation where consumers pay the price for the failures of the banking system. A major change in the structure, operation and culture of our banks is needed if we are to rebuild the trust in our banking system that was so badly damaged by the financial crisis,’ he added.