Osborne presses on with bank ring-fencing plan

Chancellor to spell out details of how commission reforms to safeguard banks will work tomorrow

George Osborne will claim tomorrow that there is no turning back on the Independent Commission on Banking's call for a far-reaching shake up of Britain's banking industry.

There have been fears that the Chancellor is preparing to go soft in response to industry lobbying.

Mr Osborne is expected to make a statement to the House of Commons tomorrow spelling out how the Government plans to implement the commission's recommendations. The measures are forecast to cost the industry£4-7bn.

He will also publish a lengthy document containing detailed proposals which has been hotly awaited in banking industry circles. Shares in the big British banks have been under a cloud over the past few months, with analysts complaining that they are impossible to value until there is more detail of how the proposals made by Sir John Vickers' commission are to be enacted.

Critics have claimed that ministers have "gone soft" in consulting with the industry and allowing for a long timescale which will not see major changes – such as forcing banks to "ring fence" retail operations from "casino" investment banking – until 2019. They also fear that there will be an attempt to quietly water down some of the more controversial recommendations in the face of intense lobbying from banks.

The Chancellor is expected to say that the slow implementation simply aligns UK law with the timetable for implementing the international Basel 3 banking reforms into European law.

Publicly the banking industry has sought to respond constructively to the commission's findings but privately senior bankers remain deeply unhappy with the recommendations.

They have warned that the ring-fencing proposals and the demand that banks take out so-called "bail in" bonds – which would provide an additional capital buffer and convert into new shares if a bank gets into trouble – will be vastly more costly than Sir John's £4.75bn estimate.

The bonds are particularly contentious for HSBC and Standard Chartered. Their businesses are heavily weighted towards emerging markets and largely funded through deposits as opposed to short-term wholesale funding from money markets.

Some analysts have calculated that the cost of holding bail in bonds for HSBC could reach £2.5bn, while chairman Douglas Flint has put it at £1.75bn. HSBC has repeatedly said such costs will be factored into its deliberations on whether to leave the UK. Standard Chartered has made similar noises.

HSBC has also argued that the "ring fencing" demand should just be applied to its UK retail bank rather than its global operations. Concessions could still be made in the document, which is understood to be "highly technical". "It's not bed-time reading," said one source.

As well as policy recommendations and plans for how to take them forward the report will also include a detailed timeline. Some senior bankers have floated the idea that banks which have constructed "living wills" – spelling out how they would be wound up in an orderly fashion in the event of failure – should be exempted from the ring-fencing demand. However, that is understood to have been ruled out by ministers.

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