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UK retail banks should be ‘ring-fenced’

The Independent Commission on Banking has recommended that UK banks’ retail operations should be ‘ring-fenced’ from their investment banking arms.

However, in its interim report the commission stopped short of recommending the two should operate as separate entities.

It also said more competition was needed in retail banking, including the sell-off of more Lloyds branches.

The Federation of Small Businesses (FSB) has welcomed the report from the Independent Commission on Banking (ICB), and urged the Government to look closely at its interim recommendations in order to open up competition in the sector.

John Walker, national chairman, Federation of Small Businesses, said:“We welcome the idea of separating different arms of the banks as for the most part, small businesses have little alternatives than their bank for vital financial services.

“Through making retail and investment parts of the bank financially separate it will help to provide a continuous service for small firms in the event of a problem within another arm of the bank, meaning that the retail arm can continue to lend and that deposits held should be safe.”

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.

Bank shares reacted positively to the report, with Barclays shares up 3.2% and Royal Bank of Scotland 2.4% higher in morning trade.

However critics have said that the banking commission plan is for damage limitation not a plan to ensure that the retail banks don’t go bust again.

Paul Kenny, GMB general secretary, said “The elephant in the room, the bonuses and the greed which were the root cause of all the trouble and which lead to the bankers’ recession, has been completely ignored in this report.

“There is no guarantee that this root cause will be tackled so there is no guarantee that it won’t bring the banks down again.

“This is a plan for damage limitation not a plan to ensure that the retail banks do not go bust again.

“The last time the banks went bust they ran a coach and horses through all the regulations and they will do it again unless casino banking is separated from retail banking.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .