Reaction | Focus on Vickers



“The UK is going it alone on ring-fencing, so the government must rigorously examine how and when to implement these proposals, otherwise it risks damaging businesses and threatening growth. The Commission is right to recommend a flexible approach to ring-fencing and suggest a reasonable time frame for implementation. However some of the services that might be prohibited within the ring-fence, such as exchange rate hedging and other risk management products, could increase costs for firms to access critically important financial services. The proposals on capital requirements are out of step with internationally agreed measures underway so will increase the cost of lending for UK businesses, putting them at a disadvantage to their overseas competitors. Companies want greater competition in banking so it’s positive that the Commission has set out measures on making switching much easier and improving price transparency. The UK needs a stable and resilient banking system, but it is critical that the government implements these reforms in a way that supports lending to businesses.”



Andrew Tyrie, the chairman of the Treasury Select Committee, has done more to influence the thinking of Sir John Vickers than most politicians, writes David Crow.

The ICB appears to have heeded his committee’s advice on competition for example. “He's moved away from vey prescriptive approach to competition and much closer to our position by emphasising the need for transparency and account switching,” Tyrie told City A.M.

Tyrie was adamant that the proposed ring-fence was a “matter for primary legislation” – that is, it can not be tacked on to any existing laws. However, he cautioned the law should not be too prescriptive, because a ring-fence designed today might not be fit for purpose at the end of decade, when it will have to be erected.

“Any ring-fence designed now will need to look different in a decade because banks are so innovative,” he said.

The new requirements around capital and debt should not be phased in until 2018, or perhaps even later, he said.

He said the committee would be exploring whether the proposed ring-fence is as effective as a complete separation of investment and retail banks, similar to the now-defunct US Glass-Steagall Act.

Although Vickers is proposing that banks comply with some of the most onerous capital requirements in the world, Tyrie played down fears that banks could quit the UK.

“We should work out what's best for British banks and for the British economy, but – above all – what’s best for British taxpayers. We need to listen to the arguments from banks but not allow them to turn those arguments into a veto on these reforms,” he said.



“The Final ICB report looks mostly as expected to anyone reading the UK press in the last month. Domestic retail banking services should be inside the ring-fence; global wholesale or investment banking should be outside; and the provision of straightforward banking services to large domestic non-financial companies can be in or out. The ICB recommends that the retail and other activities of large UK banking groups should both have primary loss-absorbing capacity of at least 17-20 per cent of risk-weighted assets.

This looks like it might be a little better for Barclays and RBS than expected. Lloyds is not required to sell more branches, but the ICB recommends that Lloyds divestment must have enough funding in place to allow a strong challenger bank to emerge.”



“The devil is in the detail of the Vickers Report – the cost of borrowing is likely to rise by about 0.7 per cent and GDP growth will be 0.1 per cent less. In reality there is more substance in this report than in the interim report and there are important recommendations on capital adequacy and on competition which are in many ways more relevant to the future of banking than the ring-fencing proposal. The report proposes that banks have equity and ‘bail in bonds’ worth 17-20 per cent of their risk weighted assets. This is substantially more than is the norm internationally under the Basel rules and would provide a substantial buffer against banks needing to be bailed out. On the other hand, having nearly a fifth of the assets tied up in minimally productive investments will widen bank spreads by perhaps as much as 0.7 per cent.

There is a trade-off for minimising the risk of a bailout – reduced economic growth. A rough back of the envelope calculation is that GDP growth for the UK could be reduced by around 0.1 per cent by the proposals.”



“The Vickers Report fails to deal with what really needs to be done to transform our banks – let’s argue for real reform of our financial system, turning the banks from casinos that enrich themselves into utilities that serve us.”


“The suggestion to create firewalls in 2019 will bring immediate uncertainty to workers across the sector, while the greedy bankers find ways to manoeuvre around, and lobby against these reforms.”