Government committed to banking overhaulTreasury accepts Vickers' report findings

20 December 2011

Joint committee

Which? welcomes the acceleration of ring-fencing legislation

The government has given its approval to implement major reforms to the UK's banking sector - with the biggest change forcing banks to separate out their retail operations and risky investment banking operations.

The proposals from the Independent Commission on Banking (ICB), run by Sir John Vickers, have been endorsed by the government and will be implemented by 2015.

Chancellor George Osborne said that 'it's important to know that this ringfence will not prevent banks from failing, but it does mean if banks get into trouble, those elements of the banking system that are vital for families, businesses and for the whole economy can continue without resort to the taxpayer.'

Banks must now hold more capital in reserve to absorb losses. The proposals initially required banks to hold a minimum of 17% in reserve. Mr Osborne confirmed that this will remain in place but would only apply to the UK operations of British banks. 

RBS to be cut down in size

Along with agreeing to the proposals of the ICB, Mr Osborne also announced that state-owned Royal Bank of Scotland (RBS) should reduce the size of  its investment banking arm.

Mr Osborne said: 'RBS itself has made significant changes since 2008, including reducing the size of its investment bank by half. But I believe RBS needs to go further and the management agrees. RBS will make further significant reductions in the investment bank, scaling back riskier activities that are heavy users of capital or funding.'

More competition in banking

Which? has campaigned for greater reform of UK banking but believes the government could go further to promote banking competition.

Which? chief executive Peter Vicary- Smith said: 'The Government is right to concentrate on the fast introduction of retail bank ring-fencing. People are sick and tired of losing money on bailouts and want their savings to be protected from risky investment banking.

'It's vital that steps are taken to promote choice on the high street, but Lloyds is already a mega bank and needs to be forced to sell more branches. Without strong action, consumers will continue to pay the price for a lack of competition. 

'People have told us that portable bank account numbers will encourage them to switch their current accounts. Banks will only feel the pressure of real competition when customers vote with their feet and portable account numbers will give people the tool they need to do that.'

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