ICB final report recommends ring-fencing

| September 12, 2011 | 0 Comments

The Independent Commission on Banking’s (ICB) final report has been published today and is recommending that UK banks should ring-fence their retail banking operations.

According to the report, ring-fencing would protect banks from riskier investment banking divisions and would “make it easier and less costly to resolve banks that get into trouble”.

The ICB, which was established in June 2010 to explore how taxpayers could be protected from future banking crises, is suggesting the changes be implemented by the start of 2019.

Chancellor George Osborne has welcomed the report and comments: “This commission has tackled that big question that we face in Britain, which is how can we be a home to successful banks that compete around the world, but lend to British families and British businesses, but at the same time protecting us as taxpayers from the cost of them going wrong, and not ending up with a multi-million pound bill when the bank collapses.”

The Chancellor now has the power to act upon or ignore the Commission’s recommendations.

Following the publication of the report, bank shares all lost ground with HSBC losing 1.6% and Barlcays, Lloyds and Royal Bank of Scotland all around 4% lower.

However, bank shares were generally lower across the globe as fears persist about the euro zone’s debt crisis.

Meanwhile, the ICB report also recommends that the Government should ensure that Lloyds Banking Group’s planned sale of its 600+ branches in order to boost competition among High Street banks.

In the meantime, the Commission is suggesting that action should be taken in order to make it easier to switch bank accounts and is recommending a free current account redirection service to be implemented within the next two years.

The report comes shortly after leading think tank, the Ernst & Young ITEM Club, said ring-fencing retail and investment banks will reduce economic growth and could result in an increase in the cost of lending to big companies.

Furthermore, the Confederation of British Industry recently warned that ring-fencing would ultimately make it more difficult for businesses to get cash from their banks and therefore damage the UK’s sluggish economic recovery.

Angela Knight of the British Bankers’ Association (BBA) said regulatory change could undermine the recovery and UK banks need to focus on lending and should not be distracted by regulatory changes.

Economists and lobby groups have also warned that the changes could force some of the country’s top financial institutions to relocate.

Standard Chartered recently said it was looking to free itself from stricter regulations in the UK by considering relocating to the Far East.

Tags: , , business groups, , , final report, , harm, , , recommend, , , ring-fencing, , stricter,

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