Commission considers splitting banking

Nia Williams

September 24, 2010

The Commission has been asked to consider structural and related non-structural reforms to the UK banking sector to promote financial stability and competition, and to make recommendations to the Government by the end of September 2011.

The Issues Paper published this morning describes the Commission’s initial approach to considering financial stability, competition and the other issues to which it must have regard under its Terms of Reference.

The Paper then outlines a number of options for reform in broad terms, but emphasises that the list is not intended to be exhaustive and that the Commission has not moved towards any particular options at this stage.

The options set out in the paper are:

Reform options related to the structure of banks

• Separation of retail and investment banking

• Narrow banking and limited purpose banking

• Limits on proprietary trading and investing

• Structural separability, including living wills and resolution schemes

• Contingent capital

• Structure-related surcharges

Reform options related to the structure of markets

• Measures to reduce market concentration

• Market infrastructure reform

The Commission is inviting views and evidence on a number of questions raised in the Issues Paper, including the benefits, costs and feasibility of the options above and whether there are other options the Commission should examine.

Commission Chair Sir John Vickers said: “Experience shows that the risks from not asking hard questions about financial stability and competition are far greater than from doing so.

“Questions about the structure of banking need to be debated in an open, rational way, and we would like to invite anyone with an interest to provide us with views and evidence.”

The BBA welcomed the Issues Paper. Angela Knight, chief executive of the British Bankers’ Association said: “We look forward to a measured, rational and objective consideration of how we can work together to improve the banking industry in the UK.

“We believe the UK industry has already taken significant steps to improve its financial position. Our retail banks – as independent research has shown – also already provide customers with more choice, greater protection and offer better value for money than in other countries.

“The Commission desires to see a more resilient financial system where no bank need be viewed as too big to fail and where there is no return to the type of taxpayer support needed during the recent financial crisis.

“A vast amount of work is being undertaken on this. We have just seen agreement on a new capital and liquidity accord – UK banks are already holding twice as much capital as previously and several times more liquidity.

“Work has also been undertaken on corporate governance, accounting and risk, and we are in discussion on recovery and resolution plans and other contingent measures recognised in the report.

“We believe that when you look at the issues the Commission identifies, and place them against the experience of the crisis, then we have the potential for constructive solutions that take us where we ought to be.”

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