The Independent Commission on Banking has held off from ordering Lloyds Banking Group to sell more than the 632 branches it has already agreed under European Union obligations.
The bank was required to sell the branches as a result of the government bailout it received during the financial crisis, but the ICB’s interim report recommended the number of branches included in the sale be significantly increased.
However, in its final report last week, the ICB recommends the government reach an agreement with Lloyds group to ensure the sell-off leads to a strong bank.
It says the buyer of the branches must have a funding position at least as strong as its peers and a minimum 6% share of the personal current account market.
Lloyds group says the 632 branches it has to sell under Project Verde has a 4.6% share of the personal current account market.
The ICB report also confirmed that banks will have to ring-fence their retail divisions from their investment arms, but gave them flexibility in how the ring-fence is imposed.
It states that certain operations will need to be inside or outside the ring-fence but others such as lending to large companies outside the financial sector, should be permitted but not required within the ring-fence.
In addition, the ICB confirmed that large retail banks should have equity capital of at least 10% of risk-weighted assets.
The report says implementation of the reforms will be completed by 2019 and will cost banks between £4bn and £7bn.
Michael McKee, head of financial services regulation at law firm DLA Piper, says the final report has broadly stuck to the line set out in the interim one.
He adds: “Most interesting is the detail of how the ring-fence will operate. It looks like it will be quite hard, meaning a retail bank will have to deal at arm’s length with other parts of the group and apply large exposure rules.”