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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 the two should operate as separate entities. | However, in its interim report the commission stopped short of recommending the two should operate as separate entities. |
| It said more competition was needed in retail banking, including the sell-off of more Lloyds branches. | It said more competition was needed in retail banking, including the sell-off of more Lloyds branches. |
| The commission's final recommendations will be published in September. | The commission's final recommendations will be published in September. |
| The banking commission was set up by the government last June to review UK banks after the financial crisis. | The banking commission was set up by the government last June to review UK banks after the financial crisis. |
| However, the government is under no obligation to implement its recommendations. | |
| Bank shares reacted positively to the report, with Barclays and Royal Bank of Scotland rising about 3% in early trading. | Bank shares reacted positively to the report, with Barclays and Royal Bank of Scotland rising about 3% in early trading. |
| Cash reserves | Cash reserves |
| The report said that, in the build-up to the crisis, lenders and borrowers took on "excessive and ill-understood risks". | The 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 for the banks encouraged "too much risk taking". | It added that implicit taxpayer support for the banks encouraged "too much risk taking". |
| 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. |
| The report recommended that banks should have 10% of their capital set aside to cover potential losses, higher than the 7% set out in new European regulations. | The report recommended that banks should have 10% of their capital set aside to cover potential losses, higher than the 7% set out in new European regulations. |
| This means that for every £100 they lend out, banks should have £10 of capital in reserve. | |
| It said it was looking at forms of "retail ring-fencing" under which retail banking 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 be carried out by a separate subsidiary within a wider banking group. |
| 'Allowed to fail' | 'Allowed to fail' |
| Sir John Vickers, chairman of the commission, told the BBC that "total separation [of retail and investment banking] is not necessary". | 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." | "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. | 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. | "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. |
| Without an implicit government guarantee, which banks currently enjoy, lenders would view investment banks as more risky, and therefore charge more for their money. | Without an implicit government guarantee, which banks currently enjoy, lenders would view investment banks as more risky, and therefore charge more for their money. |
| However, these costs would be more than offset by the benefits of "materially reducing the probability and impact of financial crises", the report said. | 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 should sell more of its branches in order to increase competition on the High Street. | The report also recommended that Lloyds Banking Group should sell more of its branches in order to increase competition on the High Street. |
| 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. | 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. |
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