Report recommends banking reform

Banks in the UK with consumer and securities units have to separately capitalize them by 2019, the Independent Commission on Banking in the UK said today in a 360-page report.

The report by the government-appointed commission found that British consumer banks should be shielded from investment banking units to ensure they survive a financial crisis without taxpayer assistance.

The proposals will cost as much £7 billion, the report said.

"The Commission believes that ring-fencing would achieve the principal stability benefits of full separation but at lower cost to the economy," the commission said in the statement.

British banks should have primary loss-absorbing capacity of between 17 per cent to 20 per cent, according to the Vickers report. That could include equity, bail-in bonds and long-term unsecured debt.

The British government last year asked John Vickers (53), a former Bank of England chief economist, to chair a commission considering ways to enhance competition and reduce the risks posed by the financial sector. Since 2007, the British state has been forced to spend, pledge and loan £850 billion to rescue British banks, according to National Audit Office.

The British Bankers' Association said that the Vickers Commission's proposals need to be "carefully analysed and compared with those agreed internationally."

"It is vital that the full impact any further reforms will have on the economy, the recovery and banks' ability to support their customers in the UK is understood," the representative association said today.

Bloomberg