Banking reform: Will cost at least

12th September 2011

The Financial Times (paywall) reports that the bill for the changes could be as much as £7bn.

The Independent Commission on Banking, chaired by Sir John Vickers, published its final report into the reform of banking in the UK.

Its main recommendation is the implementation of a firewall between a bank's retail operation – such as current account banking, saving deposits and small business lending –  from the rest of its businesses.

The Guardian's Jill Treanor writes that the reforms, if implemented, "were effectively restorative of what went before in the recent past – better-capitalised, less leveraged banking more focused on the needs of savers and borrowers in the domestic economy"

The chancellor George Osborne has committed himself to the reforms which are unlikely to be incorporated until 2019.

But the changes do not, for many, go far enough. Charles Middleton, managing director at ethical bank Triodos, said only "full complete separation of banking" will provide depositors with institutions they can trust, and which can be more accountable.

He maintains that banks need to start becoming fully transparent to customers, with clear reporting across all levels of business, so that savers and investors can make a choice as to how they want their money to be used when deposited.

"And lastly, this report fails to address the broader, more important questions around the role banks have to play in society."

"Banks should publicly consult on a range of socially-relevant issues and support more social and environmental businesses through financing. The potential for banking to bring positive societal and environmental change is huge and must be recognised by the world's financial regulators and institutions."

"According to a recent consumer poll conducted by Triodos , 25% of savers have never had any information from their bank explaining how their savings are being used."

Middleton adds: "It's therefore no surprise that a staggering 85% of all savers in the UK want more information to be freely available from banks so they can see what actually happens with their money once it's deposited with them"

"The poll also shows that over half of UK savers (54%) claim they would be concerned if they knew their hard earned savings were still being invested in complex financial derivatives, one of the key drivers of the financial crisis back in 2007."

Shaun Richards, Mindful Money's economist blogger believes that the options presented by the Vicker's report were inadequate but that some kind of reform was needed, probably before 2019.

He said: "banks seem to have undertaken a successful campaign to takeover our political structure."

Leaving the banks the 'get on with it' because they are considered one of the mainstays of the British economy would be a mistake.

He adds: "If we look at the last time [the banks were considered successful] we found ourselves in an even worse situation as individuals such as the man formerly known as "Fred the shred" who was in charge of RBS were brought in to advise on other areas of government."

"So when I see that the Vickers Report will not be fully implemented until 2019 I wonder this. Will it ever be implemented? And what will we do if a bank collapses before then?"

"Put another way bank shares are falling heavily around Europe as I type this in response to the Euro zone crisis but Lloyds Banking Group is up 2% in an early critique of this inadequate report."

Mindful Money blogger Kim Stephenson writes: "You can play around with the rules all you want, but it isn’t going to control what goes on.

"Humans are problem solving animals.  If you pose the problem as, “how do you pay yourself billions, irrespective of who else gets hurt”, people (particularly alpha males who predominantly run banks) will do pretty well anything to solve that problem.

"You have to pose the problem in a different way, so that the efforts to be seen as the ace problem solver and thus get paid the big bucks, actually benefit other people and don’t put them at risk."

More:

Vickers banking report – first reactions

Myths of regulation: What’s “bad for business” and what’s not

Reform – is that an order or a request?

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