UK Banks face major reforms

UK banks should ring fence their retail banking divisions to protect them from riskier investment banking arms said the Independent Commission on Banking.

The report led by Sir John Vickers and backed by the government had two remits, to find ways to avoid another taxpayer bailout and to look at competition on the high street.
The report said retail banks should be ring-fenced from their investment arms and should be separate legal entities with an independent board.
Only these ring-fenced banks should be able to take deposits from individuals and small businesses.
Retail banks should be banned from providing certain, more risk services.

People who wish to move banks and switch their accounts should be able to do so in seven days and for free.
UK banks should hold more cash. This is defined as at least 10% of its risk-weighted assets, money used in investment activity.
UK banks should also have a loss-absorbing capacity of at least 17%-20%.
The ICB called for the changes to be implemented by the start of 2019.

If the recommendations had been in place before 2007 they would have helped prevent the run on Northern Rock and the collapse of Lehman Brothers, three years ago this week, which led to the banking crisis the ICB claims.
The British Bankers’ Association said in a statement: “UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained.
“The ICB's recommendations cover the same important issues.

“Any further reform measures adopted by the UK authorities need to be carefully analysed and compared with those agreed internationally.
“It is vital that the full impact any further reforms will have on the economy, the recovery and banks' ability to support their customers in the UK is understood.”
Adrian Coles, director general of the Building Societies Association, said: “We welcome the ICB report which if implemented will make the banking system in the UK both more stable and competitive.  
“The ring-fence proposals appear both sensible and proportionate.

“Our hope now is that Government will move ahead with these recommendations and at the same time use it to do what they promised in the Coalition Partnership Agreement and bring forward detailed proposals to foster diversity in financial services and promote mutuals.”

Graeme Hughes, group director of Nationwide, said: “Building societies were not part of the problem, but we are part of the solution.
“We have been operating under ring fencing for many years and during that time our customers have been getting great deals and excellent service in the knowledge that we are safe and secure and do not take unnecessary risks with their money and there is no reason for this to change in the future.

“The ICB's proposal to ring-fence customer deposits is a sensible one.
“As a building society, Nationwide has always operated a ring-fence model and this has stood us in good stead to weather the financial crisis.
"Now that the report has been published, the government should press ahead with these reforms."
Peter Vicary-Smith, chief executive of Which? said: “Consumers can’t afford to bail out the banks again and they don’t trust bankers to change their behaviour so Which? agrees with the ICB’s call for strong action by the government.”