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ICB report calls for major reform of banking structure

The Independent Commission on Banking (ICB), backed by the Government and led by Sir John Vickers, has concluded that banks should ring-fence their retail banking divisions from their riskier ‘casino’ investment banking operations, to protect customer savings and prevent future taxpayer-funded bailouts.

The ICB has published its highly anticipated final report early, following a leak. It says that "separation would allow better-targeted policies towards banks in difficulty, and would minimise the need for support from the taxpayer.”

That report estimates that up to a third of UK banks' balance sheets would be included inside the ring fence, and that it would cost banks up to £7bn a year between now and the proposed deadline in 2019 to bring about the changes. That would be a price worth paying, the ICB claims, if it will prevent a repeat of the bank failures that led to the £500bn government bailout in 2008.

The Coalition government now has the power to act upon or ignore the recommendations from the ICB, with rumours of a split between Chancellor George Osborne, who favours a more cautious approach and does not wish to include the proposals in the current Financial Services Bill, and Liberal Democrat ministers including Business Secretary Vince Cable, who wish to see the reforms implemented rapidly.

The British Bankers' Association warned that reforms would need to be "carefully analysed and compared with those agreed internationally", adding that “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.” Some economists have warned the changes could harm the UK's economic growth as the banks are likely to increase the cost of lending to offset implementing the reforms and some may consider leaving the UK.

However, the initial response from the Treasury to Vickers’ report has been positive. An official statement said the Chancellor considered the report to be both impressive and an "important step towards a new banking system" and that such a system would "support lending to businesses and families, support the economy and jobs, but doesn't cost the taxpayer billions of pounds when it goes wrong.”