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Which? welcomes UK retail banks ring-fencing plan

Allow banks to fail without crashing the economy

Northern Rock logo

The Chancellor is set to announce plans to privatise Northern Rock

Chancellor George Osborne has signalled his intention to force banks to ring-fence their retail operations from their investment arms in a bid to protect consumers.

Which? chief executive, Peter Vicary-Smith has welcomed the news saying ‘ring-fencing retail banking is a key step towards allowing banks to fail without bringing down the rest of the economy’ but has warned banks not to use reforms as an excuse for price hikes.

Failing banks

Separating retail banks from their investment banking arms should make it easier and cheaper to sort them out should they get into difficulties. Vital retail operations could be prioritised and investment issues could be ring-fenced and dealt with separately, minimising the risk to consumers. Peter Vicary-Smith has warned:

‘Banks should look to their investment arms to pay for these reforms as consumers are already paying through the nose for retail banking services – overdraft rates are at a 15-year high, mortgages are way above the base rate and savings are paying pitiful returns.’

Ring-fencing was one of the key proposals in the Which? backed Future of the Banking Commission and was also a recommendation in the Independent Commission on Banking (ICB) interim report published earlier this year.

Privatisation of Northern Rock

The Chancellor is also set to announce plans to privatise Northern Rock. The former mutual was nationalised in February 2008, in the early stages of the financial crisis. Which? chief executive, Peter Vicary-Smith, believes this is ‘a golden opportunity to inject some much-needed competition into the banking sector.’

He also said: ‘In a properly competitive market, banks wouldn’t be able to get away with increasing prices. This is why it’s vital that the sale of Northern Rock and Lloyds branches significantly enhances competition.’

Join the debate

Would you prefer banks didn’t intertwine ‘your’ money with risky investment banking activity? Join the ring-fence debate on Which? Conversation

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