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What the banking reforms will mean for your mortgage, your savings and the cost of borrowing
Will I get a better deal on my account?
Vickers makes recommendations that should make switching of bank accounts easier and less risky. An account transfer will have to take place within seven working days, and the bank will have to reveal each year how much interest customers are losing by having money in a current account rather than in a savings account. This "interest foregone" is the chief way banks profit from customers.
But, as Vickers acknowledges, more than 10 years ago the Cruickshank report reached similar conclusions. Despite reforms since that made switching easier, only 6% of bank customers in the UK move accounts in any one year, almost the lowest in Europe.
Fear of direct debits going astray is the chief reason people do not move, so Vickers is promising that in the transfer process banks will operate a redirection service to catch all credits and debits going to a customer's old, closed account. But with fewer banks competing for business, and inertia of customers, it's unlikely that 6% figure will rise much in the medium term.
Will it raise the cost of borrowing?
The cost of reform is estimated at from £4bn to £7bn, and some bankers are warning it may be passed on in higher interest rates. "The one way they can make money back is through charging for personal and small business customers. It could mean the end of free banking as we know it," warns moneysupermarket.com. Others believe it will encourage banks to cherry-pick profitable customers, leaving poorer ones on the shelf.
Peter Vicary-Smith, chief executive of Which? warned the banks against trying to pass on the costs "Consumers are thoroughly sick of being asked to foot the bill for banking reform – it is the investment banks that caused the crisis who should pay to put things right."
Vickers promises that the cost of ringfencing will be borne more heavily by the casino/trading arms of the banks rather than by retail customers.
To put the figures into context, the cost of securing the future of the banking system is the same as the £7bn paid out in City bonuses last year.
What does it mean for my mortgage?
Ray Boulger of John Charcol says Vickers could possibly result in slightly less mortgage choice, but adds that it is arguable there was almost too much choice prior to the credit crunch. "In the short term the impact of the eurozone debt crisis will be much more relevant than Vickers to the availability and pricing of UK mortgages," he says.
Will my savings be safer?
That is the trillion-dollar question which Vickers has tried to solve. The idea is that ringfencing will make it easier and less costly to rescue banks that get into trouble, and it should prevent any more taxpayer bailouts.
Nationwide, the building society which survived while former societies such as Northern Rock that converted to banks collapsed, said the proposals made sense. "Nationwide always operated a ringfence model and it stood us in good stead to weather the financial crisis. The banks could learn a lot from taking a look at how building societies have protected their members' money. In our view, it is the most sensible and sustainable way forward."
But ethical bank Triodos said that the proposals did not go far enough. "Full separation of banking functions is needed to fully insulate taxpayers against failure and actions of investment arms. Only this complete separation will provide depositors with institutions they can trust, and which can be more accountable."
Patrick Collinson
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