The RBS failure has highlighted just how critical basic banking services are to consumers and small businesses. It is crucial that high street banking is protected from instability. Our Future of Banking campaign recommended that essential retail banking services should be ring-fenced to help protect depositors from risk-taking elsewhere within the bank. The government’s plans to ring-fence high street banking from riskier investment banking is a major step towards restoring consumer confidence and transforming the culture of banking. These plans must not be derailed by vested interests and the government must stick to the proposed timetable so that consumers never again have to foot the bill for a banking bailout that last time cost every man, woman and child £2,000.
Richard Lloyd is executive director of Which?, the consumer protection campaign group.
While RBS should and will be broken up, its retail and investment banking activities need not be separate. EU Single Market authorities have already instructed RBS to sell parts of its business. No company dependent on state aid can be permitted to use that to maintain a competitive advantage over rivals. If administration procedures had been adequate in 2008, RBS would have been broken up then, instead of bailed out by the government. But it is a mistake to think such a break-up should separate retail from investment banking. Retail banking is not safe and investment banking not so notably more risky that it is not useful to combine them. Insofar as there should be ring-fencing, that should be between a new form of deposit – storage deposits, 100 per cent backed by government bonds – separated from both retail and investment banking activities.
Andrew Lilico is chairman of Europe Economics.