UK Banking – is the future safe?
18/10/2011
The way banks operate in the future, with proposals to ring-fence the retail and investment sectors generating concern over the challenges reform will represent.
The Independent Commission on Banking released its final report, detailing recommendations including the isolation of a bank’s retail operations from its investment activities, in an attempt to shield taxpayers from involvement in any future banking collapse.
According to the report, domestic retail banking services should be placed inside the ring-fence, global wholesale/investment banking outside, with the provision of straightforward banking services to large domestic non-financial companies either in or out. Also included in the report are suggestions for equity-to-risk-weighted-assets ratios, along with leverage ratios. Independent governance would be required in both the retail and investment banking arms of a bank.
John Vickers, chairman of the Commission, remains certain that the recommendations should create a more stable and competitive basis for UK banking for the long term. He hopes to see the establishment of a banking system that “is much less likely to cause, or succumb to, financial crises and the huge costs they bring; is self-reliant, so that the taxpayer is never again made to be responsible for losses that banks make; and is effective and efficient at providing the basic banking services of safeguarding retail deposits, operating secure payments systems, and efficiently channelling savings to productive investments in the economy.”
If the government does indeed implement the report, banks will have until 2019 to introduce the necessary changes.
