Commission prepares to reveal agenda

SIR John Vickers, the chairman of the government’s independent commission on banking, has privately outlined his desire to tone down the “fictional and emotive” nature of the banking debate ahead of the release of an issues paper this week.

Vickers, the former boss of the Office of Fair Trading, believes that presenting a logical and clear argument is crucial to getting to the bottom of the complex issues facing the banking sector.

Much of that emotion has so far focused on whether or not UK banks will be forced to break up their retail and investment banking operations – an idea dismissed by the City as a “wrecking ball” to the most successful universal banks. However, most banks are confident behind the scenes that the commission will stop short of recommending a full break-up, an attitude symbolised by Barclays’ decision to appoint its investment bank boss Bob Diamond as the group’s next chief executive.

The other primary focus to be outlined in the commission’s issues paper, to be released on Friday, is the level of competition in the UK retail banking market. Vickers and his team – ex-Barclays chief executive Martin Taylor; Claire Spottiswoode, the ex-head of gas regulator Ofgas; JP Morgan’s former co-head of investment banking Bill Winters; and FT columnist Martin Wolf – are likely to acknowledge the comparatively high level of competition in UK retail banking, sources said yesterday. But they will also address the dominance of larger players in the market and the prohibitive costs of setting up smaller rivals.

The commission has already met with the chiefs of most of the UK’s biggest banks and other industry heavyweights to clarify its intentions. Vickers and his team are also set to grill senior banking executives on an ongoing basis as part of their investigation.

● Universal banks
Having stirred up a storm of controversy in the City, the key question of whether or not universal banks should be forced to split their retail and investment operations will be a top priority on the commission’s agenda. Vickers and his team will have to balance split-up calls from the likes of Vince Cable, who believes such a move would reduce the riskiness of the largest banks, with the viewpoint of the banks themselves. Fears are rife that new rules could force some of the UK’s most profitable banks to move their headquarters overseas.

● Competition in retail banking
Although there is already a lot of competition in the UK retail banking sector, the commission is widely expected to outline concerns over high barriers to entry. The market is currently dominated by large, powerful players since the costs of setting up smaller competitors – from the cost of regulatory compliance to developing an infrastructure – are so high.

● Impact of Basel III
The impact of the recently-agreed Basel III rules on bank’s capital requirements will be high on the list of priorities.

● US Dodd Frank reforms
Vickers will also assess the UK impact of US President Obama’s sweeping rules on monitoring risk, supervising banks, banning proprietary trading and so on.

● Ways of mitigating risk
More generally, ways of reducing risk in the banking sector – minimising the impact and likelihood of bank failure – is a key issue for the commission.