Vickers banking report – first reactions

12th September 2011

One of the first out of the blocks is the British Bankers' Association with what might well be described as ‘holding statement' while it considers its tactics.

The BBA says: "UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained. The ICB's recommendations cover the same important issues. Any further reform measures adopted by the UK authorities need to be carefully analysed and compared with those agreed internationally. It is vital that the full impact any further reforms will have on the economy, the recovery and banks' ability to support their customers in the UK is understood."

Consumer group Which? is demanding the reforms already going through Parliament and says the public supports a high ringfence.

Which? chief executive Peter Vicary-Smith says:"The welcome changes proposed by the ICB won't happen overnight, but to give people confidence that lessons have been learned from the financial crisis, the Government must set out a clear and urgent timetable for reform. The Chancellor should respond to the ICB at the time of his Autumn Statement and use the Financial Services Bill, currently being debated by Parliament, as the vehicle for the legislation that is required."

Which? suggests that seven in ten people tell Which? they back the ring-fencing of essential consumer banking from high risk investments. "A clear, high and strong ring-fence will allow failing banks to go bust without taking our deposits and the rest of the economy with them," said Vicary-Smith.

Trade Union Unite is most concerned about jobs lost already and jobs which may be lost in future.

Unite's national officer David Fleming Unite says: "We have waited for too long for these recommendations on banking reform, yet today we have been presented with nothing more than merely tinkering at the edges. This is another missed opportunity to protect customers and staff from the corporate greed which brought disaster to our economy.

"Since the start of the crisis over 100,000 finance staff have lost their jobs, yet this interim report does nothing to promote a banking model more closely aligned to wider stakeholder interests and increased engagement, including with employees.

"Increased diversity and competition in the financial services' sector can only be achieved through active support for varied models of banking, mutual building societies must be supported if we want to offer choice to consumers. The recommendation to sell off bank branches will not bring radical change but simply brings more insecurity for working people in the finance sector and often harms communities where the bank branch closure means many will not have access to local financial services."

The BBC's business editor Robert Peston believes the reform is a dramatic one. He writes: "What is recommended is as close to a formal break-up of Britain's biggest banks as it is possible to get without obliging the likes of Barclays and Royal Bank of Scotland to physically separate their retail and investment banking operations. In that sense, the reforms are at least as significant for the City of London as Big Bang was in 1986, when banks were allowed to buy stockbrokers. Arguably there has been nothing quite as significant for banks in more than a century.

Arguably even more radically, the former Royal Bank of Scotland chairman Sir George Mathewson believes Lloyds should be broken down into its former constituent parts of Lloyds TSB, Halifax and Bank of Scotland according to the Glasgow based Herald newspaper.

Just prior to publication of the report, the Federation of Small Businesses wrote to Prime Minister David Cameron calling on him not to water down the report.

National chairman John Walker said: "Having commissioned a report into the banking sector, it is very disappointing that the Government is now looking to water down the findings before the ICB has even reported.  We were promised radical reform, but it now appears that this has been downgraded to ‘light touch' regulation after 2015, if we are lucky. This is simply not good enough.

"Small businesses have had a tough time at the hands of the banking sector – with more than a third of businesses missing their growth opportunity as a result of being refused credit. The Government courted businesses with promises of reform and it is time that they stood by those promises. Without urgent and radical reform the banking system will never change and those businesses needed to help pull the recovery onto firmer ground will be left to struggle."

The boss of Metro Bank Anthony Thomson, who is no fan of the mainstream banks, is quoted on This is Money saying: "There's been a lot of talk about ring-fencing. Of course, what we need to bear in mind is that the problems that occurred two, three years ago, Northern Rock, Alliance and Leicester, Bradford and Bingley, weren't the result of investment banks, they were actually the result of problems in the retail banks themselves, so I'm not sure that retail bank ring-fencing is going to be the cure that everybody thinks it might be."

But the website also carries the view of the Chancellor George Osborne quoting Treasury sources.

The source said: ‘He thinks it's a very good report and regards it as an important step in reforming our banks so that we don't repeat the terrible mistakes of the last few years.

‘He set up the ICB in order to answer the difficult questions that weren't even asked previously and he thinks John Vickers and the rest of the commission."

The market also gave its verdict early this morning and it wasn't happy as. Investment Week reports here.

The FTSE 100 was down over 2%, or 115 points, to 5,099 with Barclays falling 2.9% or 4.15p, at 139.9p, Lloyds lower by 2.37p or 0.74p, at 30.3p, and RBS down 4.8%, or 1.03p, at 20.47p.

More…

What should be done with UK banks?

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

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