British banks bracing themselves for dramatic reforms
Published 08/09/2011 | 16:48
Britain's banks were bracing themselves for confirmation of far-reaching proposals that will split their high street and investment banking arms.
The reforms are due to be recommended by the Independent Commission on Banking (ICB) in its highly anticipated final report on Monday, but a question mark remains over the speed and urgency with which they will be implemented.
Chancellor George Osborne - who wields the power to act upon or ignore the ICB's recommendations - reportedly intends to wait until after the 2015 general election to implement the proposals due to fears over the impact they could have on financial stability.
The ICB is widely expected to recommend a ring-fence - or protective firewall - is set up to separate retail and investment divisions, in a bid to protect customers' deposits from future financial crises.
But economists and business leaders have warned the changes could impact on the UK's economic growth as the banks are likely to increase the cost of lending to offset implementing the reforms and some may consider leaving the UK.
Andrew Gray, UK banking leader at professional services firm PwC, called on the Government to determine a timetable for implementation as soon as possible.
He said: "No one benefits from uncertainty and moving quickly will help mitigate impact on credit supply, recovery, UK competitiveness, bank staff morale and so on."
As well as putting forward ring-fencing proposals, the ICB is expected to recommend tougher requirements for banks to put aside more cash to act as a cushion to limit taxpayer exposure.
The commission previously said Lloyds Banking Group should go further to address competition concerns by selling more than the 632 branches it has currently agreed with Europe.
It is also expected to recommend methods by which customers will find it easier to switch bank accounts.
Mr Gray went on: "No country has made such ring-fencing changes before.
"The international community will be watching the UK very closely to understand the changes being made and the impact."
The banks have made clear their opposition to the ring-fencing proposals with the likes of Royal Bank of Scotland chief executive Stephen Hester and HSBC boss Stuart Gulliver expressing concern.
Barclays boss Bob Diamond took a softer stance as he admitted a ring-fence would not be his "first choice" but was working with the ICB on the assumption one would be put in place.
Mr Osborne today said he would receive the Vickers report tomorrow, ahead of publication on Monday, and did not yet know its contents.
He told reporters at a press conference in the Foreign Office: "This country had perhaps the greatest banking crisis and crash in its history a couple of years ago and it would be very foolish not to learn the lessons of what went wrong, very foolish not to try to protect British families from having to bail out banks again on the scale that they had to bail out banks a couple of years ago.
"That's what John Vickers was asked to look at and I think we should all wait for his conclusions and then I will respond.
"The very fact we are having this discussion, I think, is healthy. If you don't ask these questions, it doesn't make the questions go away, it just means you don't have the answers."