Watchdog may break up 'too big to fail' banks

A new Government banking watchdog today revealed it will consider splitting up "too big to fail" banks to break their stranglehold on the high street under a year-long probe into bank reforms.

A new Government banking watchdog today revealed it will consider splitting up "too big to fail" banks to break their stranglehold on the high street under a year-long probe into bank reforms.



The Independent Commission on Banking (ICB) said it will ask "hard questions" on the structure of Britain's banks, looking at whether to break up big groups to improve competition and separate retail from investment banking operations.



Retail banking is dominated by the big players following the financial crisis, with the top six groups accounting for 88% of UK deposits.



But the ICB said today it would explore the most radical options that could force market leaders such as Lloyds Banking Group to sell off assets.



It will also consider plans to hive off investment banking businesses from retail deposit operations, potentially putting the likes of Barclays and HSBC in the firing line.



Calls to ring-fence deposits from so-called "casino" banks have mounted since the credit crunch, with Business Secretary Vince Cable a vocal supporter of so-called "narrow banking".



But the commission faces a difficult balancing act amid growing threats of a bank exodus from the UK after recent threats from banks such as HSBC and Standard Chartered.



It also risks increasing the cost of credit to consumers if recommendations are too harsh on lenders.



Sir John Vickers, the former chairman of the Office of Fair Trading, who has been tasked with chairing the ICB, stressed today's opening report was a "questions paper and not an answers paper".



The commission will weed out the least practical options for an interim report on potential solutions next spring.



Sir John said: "Experience shows that the risks from not asking hard questions about financial stability and competition are far greater than from doing so.



"Questions about the structure of banking need to be debated in an open, rational way, and we would like to invite anyone with an interest to provide us with views and evidence."



But Stephen Hester, chief executive of part-nationalised Royal Bank of Scotland, warned competition was best left to the market to decide.



He told the BBC: "I feel very strongly that the number of competitors shouldn't be something that's designed in some Whitehall department."



"Whether big or small, let the market and consumers decide," he added.



The ICB - set up in June to look at financial stability and competition - said it believes that current European requirements for Lloyds and RBS to sell-off assets could "go further" to increase choice for consumers.



One option would be for the Government to use its stakes in the taxpayer-backed banks to improve competition.



"Beyond that, and most radically, is the option of requiring the UK's largest banks to divest assets with a view to creating a more competitive market structure," according to the report.



As part of its inquiry into separating investment and retail banking, the ICB said it would look at far-reaching reforms such as "narrow banking", where a bank would handle only utility services, such as transactions and deposit-taking.



Under this solution, all retail deposits would be 100% backed by Government bonds so that savings are safe, while the banks would also be immune from State bail out.



It will also consider limiting proprietary activities by retail deposit banks in areas such as hedge funds and private equity investments - an idea which has recently been introduced into US law.



However, its remit will also cover less radical moves for the banking industry.



It is to look at the possibility of allowing those with investment banking and retail operations to separate internally, or even only in times of crisis.



And on the issue of high street banking competition, it will look at a "less direct policy option" to simply reduce barriers to new entrants.



This could involve making it easier to switch current accounts.



The ICB will begin hearings with banking chiefs in private later this year, while it will also hold public meetings across the UK as part of the inquiry, which is due to complete by the end of next September



Sir John said he hoped banks would engage in "constructive" talks and sought to assure that the commission would be taking concerns over the competitiveness of the UK very seriously.



Angela Knight, chief executive of the British Bankers' Association, welcomed today's issues paper. "We look forward to a measured, rational and objective consideration of how we can work together to improve the banking industry in the UK."



However, she said: "We believe the UK industry has already taken significant steps to improve its financial position. Our retail banks - as independent research has shown - also already provide customers with more choice, greater protection and offer better value for money than in other countries."



As well as Sir John, the ICB is also made up of Clare Spottiswoode, the former director-general of Ofgas, Martin Taylor, a former chief executive of Barclays, Bill Winters, the former co-chief executive of JP Morgan, and Martin Wolf, the chief economics commentator at the Financial Times.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
Life and Style
Tikka Masala has been overtaken by Jalfrezi as the nation's most popular curry
food + drink
News
people
Voices
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Administrator

£16000 - £19000 per annum: Recruitment Genius: A Project Administrator is requ...

Recruitment Genius: International Trade Advisors - Hertfordshire or Essex

£30000 - £35379 per annum: Recruitment Genius: The company is based in Welwyn ...

Recruitment Genius: Operations Controller - Response Centre

£20000 - £22000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Resource and Recruitment Manager

£25000 - £30000 per annum: Recruitment Genius: Resource and Recruitment Manage...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn