Britain’s banks will face an annual bill of as much as £6 billion ($9.5 billion) to comply with the reforms of the Vickers Commission, according to the panel’s final report, published on Monday.
As foreshadowed, the central recommendation of the Independent Commission on Banking, chaired by Sir John Vickers, will be that banks’ core operations — including consumer deposits and small business lending — must be ringfenced from the rest of their businesses.
But in a crucial concession to the wide spread of business models among the banks, the commission will not dictate where each institution must place the ringfence, instead allowing lenders and their customers a degree of choice, according to people who have seen the report.
That flexibility is likely to be welcomed by the country’s big global banks — Barclays , Royal Bank of Scotland and HSBC — which had feared their operations would be divided along arbitrary lines.
The Vickers Commission was set up more than a year ago, with the dual aim of making Britain’s banking system safer — and thereby reducing the distorting effect of a government guarantee — and boosting competition between lenders. Its conclusions — assuming they are implemented — will constitute the biggest sweep of structural changes to the banking sector in decades.
The cost impact of the changes will mainly be the result of higher funding charges for the banks’ operations that are left outside the more highly capitalized ringfenced entity. In the eyes of investors, operations outside the ringfence will lose the benefit both of a government guarantee and of a broad bank’s current diversification.
On competition, the ICB will move to create a strong new challenger in high-street banking by recommending that branches being sold by Lloyds Banking Group are attached to an established rival. It will also force banks to provide more details on charges.
George Osborne, chancellor, and Vince Cable, business secretary, will both endorse Sir John’s report. Last week they agreed with David Cameron that its main recommendations should be passed into law in this parliament, although implementation would take longer.
The efforts to restructure Britain’s biggest banks have wide public support, according to the results of the latest Financial Times/Harris survey. Of those polled, 51 percent of people in the UK believed banks such as Barclays, RBS and HSBC should be forced to separate their traditional high-street and commercial lending operations from investment banking activities.