UK retail banks ‘need protecting’

Some banks had threatened to move abroad if they were broken up

UK banks’ retail operations should be “ring-fenced” from their investment banking arms, the Independent Commission on Banking has recommended.

However, in its interim report the commission stopped short of recommending to two should operate as separate entities.

The final report will be published in September.

The commission was set up by the government last June to review UK banks after the financial crisis.

Its report said that, in the build-up to the crisis, lenders and borrowers took on “excessive and ill-understood risks”.

It added that implicit taxpayer support encourages “too much risk taking” by banks.

The commission said that banks needed to hold more cash in reserve to protect against future crises, and that creditors, not taxpayers, should be liable for any losses.

It said it was looking at forms of “retail ring-fencing” under which retail banking would would be carried out by a separate subsidiary within a wider banking group.

This would lead to additional costs to the banks, some of which would fall on the wider economy, it said.

However, these costs would be more than offset by the benefits of “materially reducing the probability and impact of financial crises”.

The report also recommended that Lloyds Banking Group sell some of its branches in order to increase competition in High Street banking.

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