ICB proposes ring-fencing retail banking
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The Independent Commission on Banking is considering ring-fencing the retail operations of UK banks, it says in its interim report published today.
The ICB says ring-fencing retail from investment operations would make it easier and less costly to rescue banks if they got into trouble, by allowing different parts of the bank to be treated in different ways.
It adds: “It would help shield UK retail activities from risks arising elsewhere within the bank or wider system, while preserving the possibility that they could be saved by the rest of the bank.
“And in combination with higher capital standards it could curtail taxpayer exposure and thereby sharpen commercial disciplines on risk taking.”
However, the report does not go as far as recommending full separation of retail and investment banking.
It says full separation would lose some benefits of universal banking and the ICB is therefore considering forms of ring-fencing under which retail banking operations would be carried out by a separate subsidiary within a wider group.
The report also discusses three initiatives that could improve competition in retail banking: structural measures, improved means of switching accounts for consumers and regulatory tools imposed by the Financial Conduct Authority.
The ICB will publish its final report in September.
In response to the interim paper, the British Bankers’ Association says the proposed options will have to be considered alongside other reforms underway at a national and international level.
A spokeswoman for the BBA, says: “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.
“The UK’s regulatory framework is also being dramatically changed with new and welcome focus on financial stability. Banks like any other company must be able to fail and not assume the tax-payer will step in.”
As such, she says due consideration must be given to where the ICB’s interim recommendations fit within this ongoing programme, some of which remains work in progress, with further changes due before the final report is due.
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