Mon, Jan 24, 2011 page10

• ICB unlikely to seek break-up of big UK banks

  BANKERS INTERUPTUS: Options being considered include ‘forms of separation’ within big banks, such as ring-fencing banks’ retail deposits from their investment banking activities

  • Reuters, LONDON
  • • 
    • 
    • 

  Possible reforms to Britain’s banks are unlikely to include a formal break-up of the top lenders, the head of a government-backed body probing the sector in the wake of the credit crisis said on Saturday.

  The UK set up the Independent Commission on Banking (ICB) last year to examine a possible shake-up of the sector following the crisis, which saw top banks such as Royal Bank of Scotland and Lloyds needing bailouts.

  Sir John Vickers, who heads up the ICB, said that while the commission was still examining ways to separate the different activities of the country’s top banks, it was unlikely to support “narrow” bank models over diversified, bigger groups.

  Oxford University academic Vickers told a conference at the London Business School that the ICB was “unlikely to favor radical forms of narrow or limited purpose banking.”

  Despite calls from politicians to cull the investment banking industry, many industry members and analysts have said it is unlikely that British banks will be forced into a full break-up.

  Most universal banks, with activities ranging from trading to retail banking, proved stronger than many “narrow lenders” during the crisis, such as mortgage and retail specialist Northern Rock which nearly collapsed and had to be nationalized.

  “The British Bankers’ Association [BBA] welcomes the fact that Sir John rules out recommending ‘narrow banking’ and that he is not advocating the break up of the banks,” the BBA said in a statement.

  Britain’s banking industry is dominated by the “Big Four” of Lloyds, RBS, Barclays and HSBC, who have all resisted calls for a radical restructuring of their businesses.

  Barclays, HSBC and RBS have said that an excessive clampdown on their investment banking -activities could disadvantage them with regards to rivals in Wall Street or Asia.

  Lloyds, meanwhile, has resisted calls for it to split off the HBOS retail bank it bought in a -government-brokered merger during the height of the crisis in 2008.

  Vickers said “forms of separation” within such large banks was an option worth considering, such as ring-fencing banks’ retail deposits from their investment banking activities and forming separate subsidiaries for these different units.

  Under such a subsidiarization model, banks have to allocate capital to units or country operations, as Spanish bank Santander does with its British arm. The units are legally ring-fenced, but remain under the parent’s ownership.

  “If the probability and/or impact of bank failure, particularly of retail service provision, can be reduced by forms of separation between banking activities, then so too might capital requirements,” Vickers said.

  Such a move could be beneficial in the event of a bank’s collapse, he said.

  “Arguably there is a case for some form of ex-ante separation so that bank operations whose continuous provision is truly critical to the functioning of the economy can clearly be easily and rapidly carved out in the event of calamity,” Vickers said.

  The ICB will produce an interim report on its findings in April, before its final conclusion in September.
• Most Popular

  • 1

    Eurovision Song Contest triggers surge in betting interest

  • 2

    Napoli close in on title despite Parma stalemate

  • 3

    Barcelona crowned champions

  • 4

    Sinner cruises past Ruud, Gauff battles into final

  • 5

    ‘Beitou Shilin’ announced as new Nvidia office site