Fin24

Reform plans to hit UK banks

2011-09-12 09:47

London - Britain's banks should shield retail operations from riskier investment banking units and boost capital levels to protect taxpayers from future crises, in far-reaching proposals that could cost the industry £7bn a year.

The Independent Commission on Banking also said on Monday banks must hold core capital of at least 10% in their British retail banking operations and have primary loss-absorbing capital of 17% - 20%.

It estimated the annual pretax cost of its proposals at £4bn - £7bn for Britain's banks.

As foreshadowed, the ICB wants banks to separate their core retail banking operations, or put a "ring-fence" around them.

Consumer deposits and small business lending must also be within the ring-fence, but banks will have some flexibility on what should be included.

The ICB said "an extended implementation period would be appropriate" for the reforms, but should be completed by 2019.

Britain set up the ICB last year to examine ways to ensure taxpayers do not bear the brunt of future banking crises.

The credit crisis resulted in Britain fully nationalising Northern Rock and part-nationalising Royal Bank of Scotland and Lloyds. The government now has stakes of 83% and 41% in RBS and Lloyds, respectively.

Britain's "Big Four" banks - Barclays, HSBC, Lloyds and RBS - have fought hard against excessively tough new regulation and were expected to continue lobbying now the ICB's report is out.