The UK government is expected to launch a fresh consultation on Monday on proposals by Sir John Vickers to ringfence banks' high street operations from their 'casino' investment banking arms, when George Osborne sets out the coalition's formal response to the reform recommendations.
The chancellor is expected to tell MPs he wants to make the necessary changes before the end of this parliament in 2015, but give banks until 2019 to implement some of the more far-reaching plans.
Amid tension in the coalition over David Cameron's handling of the euro crisis, the chancellor and business secretary Vince Cable are said to be keen to show a united front on the reform of banks – a key item on the government's agenda.
Even so, with the latest consultation and the preparation of a white paper expected to take several months, bankers are likely to launch fresh attempts to get the government to change some of the recommendations. Among the most contentious areas are complex issues that affect bondholders in banks and exactly where the fence around high street operations should be erected.
When the Vickers recommendations were announced in September, the chancellor promised that legislation would be passed before the next parliament but said he would also stick to the timeframe set out by Vickers, who argued banks needed until 2019 for full adoption of the plans. The 2019 date coincides with one being used by international regulators in Basel, Switzerland, who are setting out rules demanding banks hold more capital.
The banks are braced for the government to implement the Vickers plans but argue that the estimated costs, of £4bn to £7bn, are too low, and could be closer to £12bn. While the proposals do not go as far as the full-scale split between high street banks and investment banks that Cable had called for in opposition, the independent commission on banking is convinced that ringfencing is a more practical way of ensuring there will never be another taxpayer bailout of banks.
Angela Knight, chief executive of the British Bankers' Association, said that she expected the chancellor to use his statement on Monday to launch a consultation. 'It is expected that this statement which start a formal process rather than conclude one', she said on her blog, where she also called for more details on the costs involved. 'The banks are committed to working with the government on regulatory reform and we hope that as part of his announcements the chancellor also commits to publishing what these changes truly mean – in cost, in economic impacts and in changes for business, as well as for the industry. This is a project in which we really are all in it together', she said.
'Put the ringfence in the wrong place and it is the customer who feels it and the customer who will bear the consequences. This is the time to practicalities come to the fore', she said.
Bankers believe that there are other topics that need to be addressed – particularly the treatment of bond holders, who are crucial in funding banks. Ratings agency Moody's has already warned that the proposals in their current guise - which put savers before bondholders should a bank go bust – could be 'credit negative' for bond holders.
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