The Bankwatch

Tracking the consumer evolution of financial services

UK Independent Commission on Banking report driving government attempts at compromise

EDIT 11th April, 2011:  Interim report issued 11th April – for my first look click here

The UK Independent Commission on Banking will report 11th April, and things are heating up.  They are expected to propose (the obvious) separation of retail and investment banking.  This is placing pressure on the coalition government, and it will be interesting to see how much we remember 2008 versus political realities.

Push to keep peace on UK bank reform

The Independent Commission on Banking, chaired by Sir John Vickers, will present its interim findings on April 11, with the final report due in September. Bankers have already expressed alarm at the possible radicalism of the commission, fearing it could recommend the separate capitalisation of universal banks’ investment and retail banking arms, which they say would be costly and complex to implement.

This will be a test for the UK coalition government, and a strong signal to the world about the direction for banking.  They are considering a wide view of potential outcomes, which have been covered here over the past 3 years.  For example the narrow banking concept, on page 33 of their Issues Paper (pdf):

Proponents of “narrow banking”3 or of “limited purpose banking”4 would go further than Glass-Steagall. Under narrow banking, retail deposits are 100% backed by safe, liquid assets, of which government bonds of short-to-medium maturity are the prime example. Retail deposits would have public deposit insurance, but the government would not bail out any other banking activity (though a narrow bank might be allowed to be part of a larger bank holding company). The core “utility” services of banking – transaction services and retail deposit-taking – would thereby be isolated from risky activities undertaken by banks, decisions about which would therefore not be distorted by considerations of moral hazard arising from implicit state support.

The mention of utility banking first came up during the crisis.  By the way, this is why Dimon is so excited right now.

Written by Colin Henderson

March 30, 2011 at 23:24

Posted in Uncategorized

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