Summary
The Independent Commission on Banking (ICB) aims to improve the stability and competition in UK banking as outlined in its ‘Interim Report’.
The report sets out the ICB's current and provisional views on possible reforms for UK banking and seeks responses to those views.
The financial crisis that began in 2007 exposed fundamental weaknesses in the global financial system and has had enormous economic costs in terms of lost output, higher unemployment and weakened public finances.
The report includes the following chapters:
- the need for reform in the UK banking sector;
- current reform initiatives;
- reform options - financial stability;
- reform options - competition; and
- consultation questions.
One of the policy approaches discussed is structural radicalism, which requires retail banking and wholesale and investment banking to be in wholly separate firms.
Another is the laisser-faire structure which seeks to achieve stability by very high capital requirements across the board.
The Commission believes the most effective approach is likely to be a complementary combination of more moderate measures towards loss-absorbency and structure.
The interim report discusses three initiatives (beyond the continued application of general competition and merger law) that could improve competition:
- The first concerns structural measures to improve competition.
- The second suggests it may be possible to introduce greatly improved means of switching bank accounts at reasonable cost - in which case the industry should be required to do this within a short timescale - and barriers to entry may be able to be reduced.
- Thirdly, the Commission regards the Financial Conduct Authority proposed as part of the Government's reforms of the regulatory architecture as potentially a vital spur to competition in banking.
The Commission's final report will be published in September.
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