Osborne welcomes banking commission report

CHANCELLOR George Osborne has welcomed the initial findings of the Independent Commission on Banking, which has called for the retail and investment functions of UK banks to be ‘ring fenced’ from one another.

“I welcome the excellent analysis in this interim report and look forward to receiving their final report later this year,” Mr Osborne said.

The commission, set up to ensure the credit crisis of 2008 is never repeated, said banks should ring-fence retail operations to safeguard them from riskier investment activities.

The commission stopped short of calling for a break up as had been demanded by some critics of the banking sector.

The ICB said today that in the build-up to the crisis, lenders and borrowers took on “excessive and ill-understood risks”, and there was still too much risk taking by banks.

Banks should hold more cash in reserves to cover their liabilities in times of crisis, and that creditors, not taxpayers, should be liable for any losses.

It said it was looking at forms of “retail ring-fencing” under which retail banking would would be carried out by a separate subsidiary within a wider banking group.

The added costs of such a regime would be more than offset by the benefits of “materially reducing the probability and impact of financial crises,” it said.

Lloyds Banking Group should sell off many of its branches to increase competition on the High Street, it said.

Sir John Vickers, who heads the ICB told the BBC that protecting retail customers was key, but other parts of banks should be allows to fail in a safe manner.

He said the UK banking system “wasn’t particularly competitive even before the crisis,” and that Lloyds TSB’s government-mandated takeover of HBOS only made things worse.

The EU has already told Lloyds to dispose of 600 branches. Vickers wants more branch disposals, to boost competition.