Banks warn that Vickers has underestimated cost of reform

ROYAL Bank of Scotland and Santander reckon the official cost estimate of the Vickers reforms are too low, according to documents published yesterday by the House of Lords.

The Independent Commission on Banking’s estimate that the changes it proposed in September to avoid another banking bailout will cost the industry between £4bn and £7bn “are understated”, Santander UK chief executive Ana Botin wrote earlier this month in a letter to the Lords’ select committee on economic affairs.

Santander’s analysis of the likely costs is in line with a £10bn estimate from analysts at Goldman Sachs, Botin said.

In a separate letter, RBS, 83 per cent state-owned after receiving an emergency bailout in the 2008 financial crisis, believes the ICB cost estimate “is likely to be understated”, its chief executive Stephen Hester said.

Adapting to the ICB recommendations will likely cost RBS between £500m and £1bn, plus annual operating costs of “some hundreds of millions of pounds”, Hester added.

The ICB, set up to propose ways of preventing a repeat of the 2008 financial crisis, wants banks to ring-fence their retail operations from their riskier investment banking activities.