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Retail banks should be ring-fenced, says commission | Retail banks should be ring-fenced, says commission |
(40 minutes later) | |
UK banks' retail operations should be "ring-fenced" from their investment banking arms, the Independent Commission on Banking has recommended. | UK banks' retail operations should be "ring-fenced" from their investment banking arms, the Independent Commission on Banking has recommended. |
However, in its interim report the commission stopped short of recommending to two should operate as separate entities. | However, in its interim report the commission stopped short of recommending to two should operate as separate entities. |
The final report will be published in September. | The final report will be published in September. |
The commission was set up by the government last June to review UK banks after the financial crisis. | The commission was set up by the government last June to review UK banks after the financial crisis. |
Its report said that, in the build-up to the crisis, lenders and borrowers took on "excessive and ill-understood risks". | Its report said that, in the build-up to the crisis, lenders and borrowers took on "excessive and ill-understood risks". |
It added that implicit taxpayer support encourages "too much risk taking" by banks. | It added that implicit taxpayer support encourages "too much risk taking" by banks. |
The commission said that banks needed to hold more cash in reserve to protect against future crises, and that creditors, not taxpayers, should be liable for any losses. | The commission said that banks needed to hold more cash in reserve to protect against future crises, and that creditors, not taxpayers, should be liable for any losses. |
'Allowed to fail' | |
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. | 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. |
Sir John Vickers, chairman of the commission, told the BBC that "total separation [of retail and investment banking] is not necessary". | |
"UK retail banking can be protected by its own capital cushion. Other parts of the bank should be allowed to fail." | |
This would lead to additional costs to the banks, some of which would fall on the wider economy, he said. | |
"The cost of capital is going to go up", Sir John said, but the costs to investment banks would be greater than those to retail banks. | |
However, these costs would be more than offset by the benefits of "materially reducing the probability and impact of financial crises", the report said. | |
The report also recommended that Lloyds Banking Group sell some of its branches in order to increase competition in High Street banking. | The report also recommended that Lloyds Banking Group sell some of its branches in order to increase competition in High Street banking. |
Lloyds is already in the process of selling about 600 branches, but Mr Vickers said competition in High Street banking would benefit from further branch sales. |