ICB Publishes Issues Paper on Structural Reforms to UK Banking Sector

The Independent Commission on Banking (ICB) has published an issues paper considering structural and related non-structural reforms to the UK banking sector to promote financial stability and competition, and to make recommendations to the government by the end of September 2011.

The purposes of the issues paper are to indicate how the Commission is approaching its task, to set out the issues on which the Commission will be focused, and to serve as a call for evidence, inviting submissions from all interested parties.

The issues paper describes the Commission’s initial approach to considering financial stability, competition and the other issues to which it must have regard under its terms of reference. The paper then outlines a number of options for reform in broad terms, but emphasises that the list is not intended to be exhaustive and that the Commission has not moved towards any particular options at this stage. The options set out in the paper are:

Reform options related to the structure of banks

  • Separation of retail and investment banking.
  • Narrow banking and limited purpose banking.
  • Limits on proprietary trading and investing.
  • Structural separability, including living wills and resolution schemes.
  • Contingent capital.
  • Structure-related surcharges.

Reform options related to the structure of markets

  • Measures to reduce market concentration.
  • Market infrastructure reform.

The Commission invites views and evidence on a number of questions raised in the issues paper, including the benefits, costs and feasibility of the options above and whether there are other options the Commission should examine.

Commission chair Sir John Vickers 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.”

Angela Knight, chief executive officer (CEO) of the British Bankers’ Association (BBA), said: “We welcome the issues paper by the Independent Commission on Banking and the opportunity to contribute to the debate on the future structure of the UK banking industry. The Commission desires to see a more resilient financial system where no bank need be viewed as too big to fail and where there is no return to the type of taxpayer support needed during the recent financial crisis.

“A vast amount of work is being undertaken on this. We have just seen agreement on a new capital and liquidity accord – UK banks are already holding twice as much capital as previously and several times more liquidity. Work has also been undertaken on corporate governance, accounting and risk, and we are in discussion on recovery and resolution plans and other contingent measures recognised in the report,” she added.


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