Vickers Report: Banks should shield retail operations

BRITAIN’S banks should shield their retail operations from riskier investment banking units and boost capital levels to protect taxpayers from future crises, according to far-reaching proposals announced today.

The Independent Commission on Banking (ICB) – known as the Vickers Report – also said banks must hold core capital of at least 10% in their British retail banking operations and have primary loss-absorbing capital of between 17% and 20%.

It estimated the annual pre-tax cost of its proposals for Britain’s banks would be between £4bn and £7bn.

The government backed the proposals, saying they would help boost the economy and protect taxpayers.

“The Chancellor considers it to be an impressive report and an important step towards a new banking system that supports lending to businesses and families, supports the economy and jobs, but does not cost the taxpayers billions of pounds when it goes wrong,” a government spokesman said.

However, the British Chambers of Commerce (BCC) warned before the plan was published this morning that the broader economy could suffer from the ICB’s proposed reforms.

“There are real concerns that ring fencing may limit banks’ ability to lend to small businesses,” BCC director general John Longworth said.

As foreshadowed, the ICB wants banks to put a “ring fence” around their core retail banking operations.

Consumer deposits and small business lending must be inside the cordon but banks will have some flexibility on what else should be included.

The ICB said “an extended implementation period would be appropriate” for the reforms, but they should be completed by 2019.

“It’s no worse than expected. They’ve gone for ring fencing rather than full separation which is not good news, but it’s certainly not the worst outcome,” said Neil Smith, analyst at WestLB.

The ICB was set up last year to examine ways to ensure taxpayers do not bear the brunt of future banking crises.

Britain’s “Big Four” banks – Barclays, HSBC, Lloyds and RBS – have fought hard against excessively tough new regulation and are expected to continue lobbying now the ICB’s report is out.