The Independent Commission on Banking has recommended that big banks should ring-fence customers’ accounts against a possible collapse of their business.
The Independent Commission on Banking (ICB) interim report echoed many of the recommendations put forward in the Which?-backed Future of Banking Commission. Both conclude that banks should be allowed to fail, but called for greater protection of consumer accounts. If implemented the ICB maintains the measures it proposes would mean that there would be no need for a total separation of retail and investment banking.
Sir John Vickers, chair of the ICB said: ‘UK retail banking can be protected by its own capital cushion. Other parts of the bank should be allowed to fail.’
Banking Commission findings ‘a step in the right direction’
Which? chief executive Peter Vicary-Smith said: ‘Today’s report is a step in the right direction. The financial crisis highlighted serious failings in our banking system and we need root to branch reforms to prevent it from happening again. We welcome the intention to ring-fence the retail banking services we rely on every day, but banks mustn’t be allowed wiggle room to avoid fundamental change.
‘Banks must be allowed to fail without bringing down the rest of the economy and we must never again be faced with a situation where consumers pay the price for the failures of the banking system.
‘Competition on the high street is at an all-time low, with the three biggest retail banking groups consisting of two that would have collapsed without taxpayer support and one that has a woeful record on customer services. This is not the template for a market that works well for consumers.
‘The financial crisis has increased the market power of the largest banks, leading to a worse deal for consumers. We’re pleased the commission recognised this, but need to consider whether the recommendations will go far enough to address the parlous state of competition in the UK.’
Call for Lloyds to sell off more branches
The Commission has recommended steps be taken to encourage greater competition in the banking sector. These would affect the way Lloyds operates. The taxpayer-backed bank is in the process of selling off around 600 branches, but the ICB report concludes that even more sales may be required, if greater competition on the high street is to be achieved.
Lloyds’ acquisition of HBOS was also criticised by the ICB as being ‘certainly not good for competition’, but there was no call for the bank to be broken up.
Portable bank accounts
The Commission has thrown its weight behind the notion of portable bank accounts, which would make it easier for consumers to switch banks. The report states: ‘Full account number portability would enable customers to change banking service providers without changing their bank account number. This would remove the need to transfer direct debits and standing orders, which remains the main area where problems may arise.’
Which? and the Independent Commission on Banking
Which? and the Independent Commission on Banking will be hosting a joint event in May to get the views of consumers on the report’s findings. Further details will be confirmed later this week.
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