Sir John Vickers should consider whether an enhanced divestment is really necessary and whether by calling for such a step the ICB is treating the symptom of inadequate competition rather than the cause. It should also confirm whether it has examined the case for further divestments of branches from other banks.

The ICB places the [size of the implicit state subsidy to the banking sector] at considerably in excess of £10bn, but has not published detailed analysis as to how it arrived at this figure. The need for consensus in this area is critical because of the ICB’s goal to eliminate this subsidy.

We are concerned that the option of full structural separation has not received sufficient analysis. To this end, we call on the ICB to provide further details as to the costs and benefits of this reform option and
why it decided early against full separation when settling its lead option in the interim report

The ICB has devoted just one page of its interim report to measures to improve the switching process and enhance transparency. Their proposals on switching
and transparency of charges to the customer need further development; indeed the interim report does not move forward the debate on this crucial issue.

One of the key findings in the Independent Commission on Banking’s interim report was that Lloyds should “substantially enhance” its sale of 630 branches, because the existing number of branches on the block was not enough to create an adequate competitor. Here the Treasury select committee appears to offer some support to Lloyds by suggesting that more branch sales wouldn’t necessarily mean more competition because such a remedy deals with the symptom and not the cause.

The Treasury select committee is calling on the commission to quantify exactly how much the implicit state guarantee to the banking sector is worth. If it fails to do so, the committee argues, then it has no hope of coming up with a set of recommendations that will eliminate the subsidy, something that needs to be done if the taxpayer is to avoid being on the hook for future bailouts. It wants the banks and the commission to agree on way of measuring the subsidy and to arrive at an agreed figure.

In its interim report, the commission came out in favour of a form of ring-fencing rather than full scale separation of retail and investment banks along the lines of the now defunct US Glass-Steagall act. The Treasury committee is suggesting that the ICB did not sufficiently analyse what further benefits a full-scale separation would have in terms of financial stability. City A.M. understands the ICB is now revisiting the prospect of full separation, which is bad news for banks like Barclays.

The Treasury committee comes down quite hard on the commission for its work on making bank charges more transparent and making it easier to switch accounts. It believes that if the consumer were better able to compare the charges of different banks and then easily switch to a better deal then it would help promote more healthy competition. However, it points out the commission has only produced a page of answers that are largely unoriginal.