Banking reform to go ahead
Business Secretary Vince Cable told the BBC’s Andrew Marr show yesterday that the Chancellor will accept in full the ‘Vickers Operation’ put forward by the Independent Commission on Banking (ICB) in September.
The proposals, led by Sir John Vickers are designed to reduce the risk of a repeat financial crisis, to create a self-reliant banking system so that the taxpayer does not have to foot the bill, and to increase competition amongst banks.
Perhaps the most controversial proposal is the ring-fencing of a bank’s retail arm from its wholesale and investment banking arm. Benefits of separating the two units include making it easier and less costly to sort out banks that get into financial trouble, without calling on taxpayers, insulating vital retail banking services from global financial shocks, and increased competitiveness.
A ring-fence would, the report argues, be more cost-effective than total separation, and can provide the same benefits. But the measures were met with concerns from banking groups, claiming that they would be costly to implement and as a result have a negative impact on lending.
Other reforms outlined in the report include measures to boost competition, particularly in the current account market. As a result, competition will be made central to financial regulation by giving the new Financial Conduct Authority a clear duty to promote effective competition.
It had previously been thought that if the reforms did go ahead, it would not be until after the current parliament, but Cable said yesterday that legislation would be completed in the current Parliament – before May 2015.
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