Banks face major reorganisation

UK banks should ring fence their retail banking divisions to protect them from riskier investment banking arms, a government-backed commission has said.The Independent Commission on Banking, led by Sir John Vickers, said it would "make it easier and less costly to resolve banks that get into trouble".The ICB called for the changes to be implemented by the start of 2019.Chancellor George Osborne welcomed the "good" report and said he planned to stick to the timetable it recommended."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," he said."I think the commission has done a very good job."Sir John Vickers salled the report: "fundamental and far reaching."Another of its recommendations is that banks must have have loss-absorbing capacity of between 17-20% of what are called their risk-weighted loansand investments.The ICB report also says the government should ensure Lloyds Bank's planned sale of 632 branches leads to the emergence of a "strong challenger bank".It also also recommends steps should be taken to make it simpler to switch bank accounts.It says a free current-account redirection service should be formed by September 2013 with an improved system to catch all credits and debits going to a customer's old, closed account, including automated payments on debit cards and direct debits.The BBC's business editor, Robert Peston, calls it the most radical reform of British banks in a generation, and possibly ever.He says it will be hated by the biggest UK banks, Royal Bank of Scotland (RBS) and Barclays.The British Bankers' Association said banks had already begun the process of making themselves safer: "UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained."Michael Symonds, analyst at Daiwa Capital Markets, said there was a danger that the changes would damage UK banking's international competitiveness: "Into the unknown we go, in terms of the recommendations. The main issue really is the fact that the UK is going it alone on their structural reforms and the potential damage it will do to the competitiveness of the UK banking sector and economy as a whole."There is a view that regulating UK banks could push some to leave the country in search of a place where regulation is lighter.Sir John said he thought this was unlikely, at least as far as High Street banking was concerned.The ICB was set up last year to look at how taxpayers could be protected from future banking crises.The credit crisis resulted in the government nationalising Northern Rock and part-nationalising the Royal Bank of Scotland and Lloyds.The government now has stakes of 83% and 41% in RBS and Lloyds, respectively.The ICB said its proposed reforms could result in a pre-tax cost of between £4bn ($6.4 billion) and £7bn for Britain's banks, something Sir John said would be unilkely to be felt by individuals.He said the cost would be around one thenth of 1% to customers, with the banks themselves absorbing some of the costs.From / BBC