CONSUMERS should be prepared for a ramp-up in costs as a result of proposals by the Independent Commission on Banking (ICB) to reduce banks’ implicit state subsidy, the commission admitted yesterday.
“Bank borrowing customers had too good a deal in the run-up to the crisis,” said ICB member Martin Taylor.
ICB chairman Sir John Vickers said that higher prices are inevitable: “The idea that there’s some free lunch out there is not the case,” he said.
The commission’s interim report released yesterday reveals that it favours ring-fencing banks’ retail operations and requiring them to be highly capitalised separately from the broader banking group.
The commission said that it expects costs to rise the most for investment banks, whose capital ratios are subsidised by retail deposits.
But the question of duplication costs remains if banks are required to provide a standalone infrastructure for their retail subsidiaries so as to “keep any such interruptions (in essential services)?to a minimum”, as the commission intends.
PricewaterhouseCoopers’ Andrew Gray says: “Many of the banks have integrated support services, which will be harder and costly to separate.”