Vickers to call for 'firewalls' to protect savings banks

The Independent Commission on Banking (ICB) is this morning expected to call for firewalls to separate banks' High Street operations from their "casino" investment arms.

After the £40bn-worth of taxpayer bailouts needed to save Britain's banks during the financial crisis, the aim of the Commission is to ensure that riskier investment operations can go bust without taking ordinary savers with them.

The much-anticipated report from the ICB, led by Sir John Vickers, will fall short of recommending a full break-up of the banks – a remedy which was on the table when the Commission was created last summer and included in the Liberal Democrat manifesto at last year's general election.

But major banks are strong opponents of even the lighter-touch "subsidiarisation". Barclays chief executive Bob Diamond claims it will raise costs for both the bank and its customers. And major banks, including HSBC and Standard Chartered, are hinting they could even move lucrative investment banking arms out of the UK.

Bank reform is a highly political issue for the Chancellor, who has been accused of being "soft" on the banks by allowing taxpayer-owned institutions to continue paying out multi-million pounds bonuses. But George Osborne will not reach a final judgement until the autumn, when the ICB's final report is published following six months of consultation and revision.

Alongside a remedy to the risks of universal banking, Sir John's report this morning will also consider the level of competition in the British industry, where 85 per cent of all personal bank accounts are held by just five companies.

Sir John is expected to conclude that the Lloyds Banking Group takeover of HBOS, rushed through at the height of the crisis, has damaged competition in the industry, and recommend that Lloyds sell off more of its branches.