The UK's banks face an annual bill as high as £7bn to comply with the reforms of the Vickers Commission, according to the panel's final report published today.
As predicted, the central recommendation of the Independent Commission on Banking, chaired by Sir John Vickers, is that banks' core operations - including consumer deposits and small business lending - must be ringfenced from the rest of their businesses. The ringfenced entity must also have its own board of directors, reports the Financial Times.
But in a key concession, the commission will not decide where each institution must place the ringfence, instead allowing lenders and their customers a degree of choice.
On capital, the Commission held to its interim conclusion from April that the ringfenced entity must maintain equity capital equivalent to 10% of risk-weighted assets. It also said banks must maintain further loss-absorbing capital, such as bail-inable bonds or contingent convertible bonds (Cocos), of a further 7 to 10% of RWAs.
However, people close to the Commission said that would be academic for the banks, which already had between 15 and 25% of such capital, the Financial Times reports.
On competition, the ICB will move to create a powerful new challenger in high-street banking by recommending branches being sold by Lloyds Banking Group are attached to an established rival. It will also force banks to provide more details on charges.
The report said: "It is incumbent on banks to ensure that customers are aware of their banking costs, have ready access to the information required to compare alternative offers, and have confidence in the switching process should they decide to move bank. In some respects, personal current accounts are naturally more complex than other financial services, or utilities.
"However, greater transparency would help consumers to understand their PCAs
better, and provide the conditions for third parties (such as price comparison
websites) to be effective in helping customer to choose suitable accounts."
The final report said legislation to enact the reforms should be passed as soon as possible, but a time frame of as late as 2019 should be allowed to meet the capital measures.
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