The ICB report: The main reforms


The final report by the Independent Commission on Banking was published today. Its report outlines a series of reforms designed to safeguard tax payers’ money in the event of another financial crash.

Speaking on the Today Programme, Sir John Vickers who led the Commission said: “Our package of reforms is fundamental and far reaching – a major change in the structure of UK banking.”

The FTSE reacted negatively with banks as the biggest losers. As of 9:45am this morning RBS was down 5.4 per cent, Lloyds down 5.2 per cent and Barclays 4.7 per cent. These figures have all shifted around since this morning and no doubt will continue to do so throughout the day.

Chancellor George Osborne welcomed the report however, describing it as “good” and he says he plans to follow the recommendations.

The main reforms put forward by the highly anticipated report were as follows:

  •         A partial separation of retail banking from investment banking

The most significant and far reaching of the reforms put forward by the Commission, the report recommends introducing firewalls to separate the two operations with each division operating with its own separate board. The separation will not, however, be total – much to the relief of the banks.

Said Sir Vickers: “These ring-fenced retail banks, we believe, will provide a much more stable, secure basis for supply of credit to households and firms in the UK economy than in a world where retail deposits can go around the globe into investment banks.”

  •        Domestic banking to be ring-fenced

Domestic retail banking services will be inside a “protective” ring-fence designed to safeguard the customers’ deposits from riskier “casino” banking.

  •         Up to 17-20 per cent of assets to be held as a “bufferfor the largest banks

The Vickers report recommends banks keep an even greater degree of capital in their reserves than that put forward by the Basel III Committee. The ICB wants banks to have a buffer of at least 10 per cent and up to 20 per cent for the larger banks.

  •         Easier to switch bank accounts

In order to improve consumer choice, the ICB wants banks to run a specially designed programme that would allow customers to easily change bank account at no extra charge to the consumer.

  •         Lloyds sale must lead to  “a stronger challenger bank”

To improve consumer choice further, the report says the coalition should ensure that Lloyds Banking Group’s planned sale of 632 branches leads to a “strong challenger bank”.

  •        Changes to come into effect by the start of 2019

The same date as the Basel reforms – “a timescale like that puts to rest any fears of how these reforms might interfere with the process of economic recovery,” said Sir Vickers.  

  • ·        Costs to banks will be £4bn – £7bn per year

The ICB predicts the costs of implementing the changes to be in the region of £6bn – a sum refuted by those working in the industry  

For more analysis of the ICB report, try:

BBC business editor Robert Peston’s blog today

City AM’s round-up of the changes

Politics.co.uk’s analysis of the changes: “Are the banks crying wolf?”