ICB: 'Banks won't quit UK after reforms'

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There is a "low probability" banks will flee from the UK after a proposed overhaul of the industry is implemented, according to the head of the Government-appointed commission behind the reforms.

Sir John Vickers, chairman of the Independent Commission on Banking (ICB), told a committee of MPs that no British banks had threatened to move abroad if the recommendations come into force.

The ICB last month revealed a raft of recommendations including ring-fencing banks' high street divisions to protect them from riskier investment arms and setting aside more cash to cushion the blow of potential losses or future financial crises.

The ICB previously estimated its reforms would cost the banking industry between £4 billion and £7 billion to implement the recommendations, which should come into effect in 2019.

Sir John told the Treasury Select Committee banking customers - including small businesses and personal account holders - would only see costs increase by just 0.1%.

Sir John said: "I don't see a reason why they (customers) would pay a higher figure as a result of proposals of this kind."

He said most of the costs would fall outside the ringfence and if banks suggest the reforms will lead to higher costs for small businesses they should be questioned very closely.

The commission's report said a retail ring-fence - designed to protect everyday banking functions from riskier investment activities - would be designed to "make it easier and less costly to resolve banks that get into trouble" and without taxpayers' help.

Ring-fenced banks should be the only operations granted permission by the UK regulator to provide "mandated services", which includes taking deposits from individuals and small businesses.

In addition, banks should hold an equity capital base - a buffer to absorb the impact of potential losses or even financial crises - of at least 10% of its risk-weighted assets.

The commission also recommends that a free current account redirection service is formed to improve the system by which customers can switch bank accounts, to be set up by September 2013.

The Chancellor, who has the power to act on or ignore the recommendations, backed the report and pledged to pass legislation required to implement the reforms before the 2015 general election.

Economists and business leaders warned the changes could have an impact on the UK's growth as the banks are likely to increase the cost of lending to offset implementing the reforms and some may consider leaving the UK.

But Bill Winters, a former JP Morgan banker and member of the ICB, told MPs today the report is "somewhere between neutral and helpful" for the City.

He said: "British banks will come out of this in much better and stronger shape by virtue of having a policy platform implemented by their Government which is relatively clear. This is not the case in the eurozone or the US."

Earlier in the hearing, Sir John said last week's downgrade of UK banks' credit ratings by Moody's Investor Service, in light of reduced Government support, was a "benign development".

He said: "Insofar as that is a reflection of the step in progress of getting the taxpayer off the hook, I would see that as an entirely benign development."

He added: "I would see it as a natural reflection of the taxpayer getting one step further off the hook."

Moody's cut the credit ratings of 12 British lenders, including Royal Bank of Scotland Group plc and Lloyds Banking Group, last week and said the Government would be less likely to provide support in the event of failure.

Moody's stressed its review did not reflect a deterioration in the financial strength of the banking system or the Government.

Source: PA