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Some More Details Of The ICB Report
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Mark Kleinman
April 09, 2011 9:35 PM
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One thing was conspicuous by its absence in the terms of reference of the Independent Commission on Banking (ICB) when it was set up by George Osborne, the Chancellor last year: a direct attempt to tackle 'unacceptable' bonuses.
Given the undisputable fact that remuneration has been the biggest public and political flashpoint since the banking industry required the largesse of taxpayers to prevent its collapse in 2008, that looked like a glaring omission.
Yet the ICB's remit has been two-fold: to recommend measures that will secure a more stable banking system that will not require Government money in the event of a bank going bust; and improving competition to deliver better choice and service to customers.
It's the second of those two measures that will resonate most powerfully with ordinary punters when the ICB's interim report is published on Monday morning. As I revealed earlier today, the Commissioners will say that allowing Lloyds TSB and HBOS to merge during the financial crisis was a mistake and may need to be partly reversed through reducing the market share of Lloyds Banking Group.
However, it's the first part of the ICB remit that is of greater economic import, for the obvious reason that a successful blueprint for reform might mean that taxpayers around the world are not plunged again into the kind of crisis that erupted in 2007.
Here's what I expect Monday's report to include:
1. That banks have in many cases overstated the costs associated with structural reforms of their industry. A recent report by the consulting firm Oliver Wyman which said that making banks safer might cost £15bn-a-year will be dismissed.
2. That a process of operational subsidiarisation, which involves the erection of a firewall around crucial elements of a retail bank's functions, such as its IT infrastructure and savers' deposits. offers a way to protect consumers without imposing the kinds of costs on banks that would make them uncompetitive.
3. A whole section of the ICB's roughly 200-page report will be devoted to the impact of prospective reforms on the competitiveness of London as a financial services hub. I'm told that this will inject some substance into the argument against banks' concerns that significant reforms will mean the UK can no longer compete in a global industry. I have also learned that TheCityUK, the lobbying group, will respond to the ICB report by publishing an analysis of the impact of the prospective reforms.
4. That the costs of reforms need not be borne entirely by banks' shareholders or customers, but that bank employees should expect to share them through a reduction in their pay.
5. I'm told that the report is likely to include support for the so-called Volcker rule, named after the US economist Paul Volcker, who proposed strict limits on the trading activities by banking institutions which have both retail and investment banking arms (the likes of Barclays, HSBC and Royal Bank of Scotland).
6. That the kinds of reforms needed to make the banking sector safer ought to be pursued on an international basis in order to avoid Britain becoming uncompetitive.
7. That a formal break-up of the universal banks into separately-capitalised and legally-separate entities (similar to the Glass-Steagall model) would be prohibitively expensive.
Some More Details Of The ICB Report | independent_commission_on_banking | george_osborne | lloyds_tsb | Kleinman | Sky News Blogs
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Comments (3)
Mark Kleinman
April 09, 2011 9:35 PM
Recommend post (0)
One thing was conspicuous by its absence in the terms of reference of the Independent Commission on Banking (ICB) when it was set up by George Osborne, the Chancellor last year: a direct attempt to tackle 'unacceptable' bonuses.
Given the undisputable fact that remuneration has been the biggest public and political flashpoint since the banking industry required the largesse of taxpayers to prevent its collapse in 2008, that looked like a glaring omission.
Yet the ICB's remit has been two-fold: to recommend measures that will secure a more stable banking system that will not require Government money in the event of a bank going bust; and improving competition to deliver better choice and service to customers.
It's the second of those two measures that will resonate most powerfully with ordinary punters when the ICB's interim report is published on Monday morning. As I revealed earlier today, the Commissioners will say that allowing Lloyds TSB and HBOS to merge during the financial crisis was a mistake and may need to be partly reversed through reducing the market share of Lloyds Banking Group.
However, it's the first part of the ICB remit that is of greater economic import, for the obvious reason that a successful blueprint for reform might mean that taxpayers around the world are not plunged again into the kind of crisis that erupted in 2007.
Here's what I expect Monday's report to include:
1. That banks have in many cases overstated the costs associated with structural reforms of their industry. A recent report by the consulting firm Oliver Wyman which said that making banks safer might cost £15bn-a-year will be dismissed.
2. That a process of operational subsidiarisation, which involves the erection of a firewall around crucial elements of a retail bank's functions, such as its IT infrastructure and savers' deposits. offers a way to protect consumers without imposing the kinds of costs on banks that would make them uncompetitive.
3. A whole section of the ICB's roughly 200-page report will be devoted to the impact of prospective reforms on the competitiveness of London as a financial services hub. I'm told that this will inject some substance into the argument against banks' concerns that significant reforms will mean the UK can no longer compete in a global industry. I have also learned that TheCityUK, the lobbying group, will respond to the ICB report by publishing an analysis of the impact of the prospective reforms.
4. That the costs of reforms need not be borne entirely by banks' shareholders or customers, but that bank employees should expect to share them through a reduction in their pay.
5. I'm told that the report is likely to include support for the so-called Volcker rule, named after the US economist Paul Volcker, who proposed strict limits on the trading activities by banking institutions which have both retail and investment banking arms (the likes of Barclays, HSBC and Royal Bank of Scotland).
6. That the kinds of reforms needed to make the banking sector safer ought to be pursued on an international basis in order to avoid Britain becoming uncompetitive.
7. That a formal break-up of the universal banks into separately-capitalised and legally-separate entities (similar to the Glass-Steagall model) would be prohibitively expensive.
Some More Details Of The ICB Report | independent_commission_on_banking | george_osborne | lloyds_tsb | Kleinman | Sky News Blogs
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