Banking Supervision: Ring-fencing Network and investment?
- The Government-established Vickers Commission recommended that British banks be compelled to “ringfence” retail operations from investment activities. This reform would contribute to safeguard individual customers’ deposits and would also be the most restrictive of the past decades. Nevertheless, it would not go so far as to simply dismantle “universal” banks said to be "too big to fail". Alone, Lloyds Banking Group - resulting from HBoS purchase during the first financial crisis - represents 30% of retail activities in the UK. It would be compelled to sell off some more branches.
- The four main UK banks (HSBC, Barclays, Lloyds Banking Group and the Royal Bank of Scotland) are opposed to this reform. They even mentioned the possible displacement of their headquarters abroad if it proves to be too radical. Commission President Sir John Vickers talks about a “moderate combination” of the different options. However, he admits his proposal would lead to outstanding fund raisings to provide autonomy to each branch. Final report will be issued in September.
- The UK used to be late on depositors’ protection and has already been forced to increase the amount of guarantee with a European act on the issue was adopted end 2008. The Vickers Commission analyses the origins of excesses that led to the recapitalisation of RBS and Halifax-BoS (now merged into Lloyds Group). The currently considered reform, however softer than fears and threats expressed by the City, will lead to a reduction of the competitive advantage from which UK banks used to benefit. It would nevertheless be less restricting than the American New Deal’s Banking Act, “Glass-Steagall Act”, passed in 1933.
- For payments, as well as for their other activities, a European convergence is under way due to the crisis. It will be necessary to the British card industry, which used to rely heavily on revolving credit model, whose outstandings had started decreasing as early as end 2006.