Banks warn against cost of reforms

Barclays said the benefit of a retail ring-fence is “marginal at best” and would impose hefty costs on banks and customers. HSBC said the costs of the plan would be substantial and would hurt economic growth.

The Independent Commission on Banking (ICB), set up by the Government last year to examine reforming the banking industry, has published the responses of banks and others to its proposals.

Responses were mixed, it said. While banks complained about the cost and adverse impact on the economy, others said the proposals were not radical enough and wanted a full split.

The ICB’s interim report, published in April, had proposed the ring-fencing model and also suggested banks should hold more capital, in order to protect taxpayers from future financial crises.

The Big Four banks – Barclays, HSBC and part-nationalised lenders Lloyds and Royal Bank of Scotland – all said the ring-fencing approach could backfire.

Barclays said it was not necessary to set up a ring-fence around a company’s retail bank and doing so could harm the broader economy and could disadvantage UK banks in relation to overseas rivals.

Lloyds said the ring-fencing would improve financial stability but could hinder the banks’ ability to boost economic growth.

RBS, meanwhile, said the ICB’s proposals could carry “significant economic costs” and would handicap Britain.