UK Banking Reforms

The ICB’s Final Report (the Vickers’ report) was published today and a full copy can be obtained here.

Key take-home points are:

On financial stability

  • ring-fencing of domestic retail banking services; could comprise up to a third of UK bank balance sheets
  • ring-fenced part of the bank should have its own board and be legally and operationally separate from the parent bank
  • ring-fenced segments should have a high loss-absorbing cushion of up to 20% (of which 10% should be equity)
  • capital can be moved from the ring-fenced bank to the investment operation only if a 10% minimum capital ratio is maintained
  • estimated that bank costs will increase by £4bn-£7bn per year
  • implementation should be completed by Basel III date of early 2019

On competition

  • Lloyds Bank given reprieve on branch sell-off
  • customers should be able to switch bank accounts more easily (although nothing on account number portability)
  • industry to be referred for competition investigation in 2015

For a critical view have a look at “Ring-fencing and the ICB – elegant, simple, but wrong“, Institute of Economic Affairs, 13 September 2011