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Vickers report: key points

Banks should be forced to ring fence their high street businesses from their investment banking arms and be subject to a competition investigation in 2015

Banks should be forced to ringfence their high street businesses from their “casino” investment banking arms and be subject to a competition investigation in 2015, according to the independent commission on banking which issued its much-anticipated report on Monday.

The Independent Commission on Banking (ICB) argues that if its recommendations — which the government has pledged to adopt — had been in place before 2007 they would have helped prevent the run on Northern Rock and the collapse of Lehman Brothers, three years ago this week, which led to the 2008 banking crisis.

The ICB had two remits — to find ways to avoid another taxpayer bailout and to look at competition on the high street following the Lloyds rescue takeover of HBOS in September 2008.

The key points on financial stability:

• The ringfence — trailed in the interim report in April — should include domestic retail banking services while global wholesale/investment banking should be outside. The commission is vague about whether banking to large companies should be in or outside the ringfence. But, it suggests that between one-sixth and a third of the £6tn of bank assets should be inside the ringfence.

• The ICB describes the ringfence as “high” and said that the ringfenced part of the bank should have its own board and be legally and operationally separate from the parent bank.

• Ringfenced banks should have a capital cushion of up to 20% — comprised equity of 10% (as trailed in the ICB’s interim report in April) with an extra amount of other capital such as bonds. The largest ringfenced banks should have at least 17% of equity and bonds and a further loss-absorbing buffer of up to 3% if “the supervisor has concerns about their ability to be resolved without cost to the taxpayer”.

• Capital could be moved from the ringfenced bank to the investment bank if the capital ratio of the ringfenced bank did not fall below the 10% minimum.

The key points on competition:

• Lloyds Banking Group is handed a major concession. The ICB has backtracked on an idea in its interim report that the bailed out bank be required to sell off even more than the 632 branches it currently has on the market to meet EU rules on state aid. It dilutes this, to say that it “recommends that the government seek agreement with Lloyds Banking Group to ensure that the divesture leads to the emergence of a strong challenger bank.”

• It should be easier to switch bank accounts. It recommends “the early introduction” of a system that makes it easier to move accounts and that is “free of risk and cost to customers”. It rules out number portability — as is used with mobile phones — in favour of this switching service. The amount of interest that customers miss out on by having a current account — known as interest foregone — should also be published on annual statements.

• The industry should be referred for a competition investigation in 2015. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds