Structural reform represents a crucial building block for establishing a safer and more secure banking system in the United Kingdom. This Commission, in its First Report, concluded that partial structural separation of the kind proposed initially by the Independent Commission on Banking (ICB) and subsequently, with modifications, by the Government in its October 2012 draft Financial Services (Banking Reform) Bill could bring significant benefits for public policy and for banking. It is recommended a number of steps to strengthen the proposed legislation and to increase its chances of being effective, as well as other measures to enhance the stability of the banking system as a whole.
On Monday 4 February, the Government presented to the House of Commons the Financial Services (Banking Reform) Bill. The Government published alongside the Bill a policy paper on Banking Reform incorporating its response to our First Report. The Government's policy was supported by a speech that morning by the Rt Hon George Osborne MP, Chancellor of the Exchequer, an answer that afternoon by Greg Clark MP, Financial Secretary to the Treasury to an urgent question in the House of Commons, and a speech by the Rt Hon Vince Cable, Secretary of State for Business, Innovation and Skills on Wednesday 6 February.
In First Report, it was considered the policy context of the Government's reform proposals, assessed the case for a 'ring-fence' to secure greater protection for the core retail activities of the banking sector alongside other structural reform options, described how the Government proposed to give legal effect to such a ring-fence and proposed additional measures for inclusion in the Bill. This Report:
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considers the Government's response to PCBS's First Report in relation to the most significant recommendations in that Report;
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provides (in the Annex to this Report) a summary of each recommendation in PCBS's First Report, the Government response and relevant legislative changes; and
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provides amendments to facilitate debate in the House of Commons and House of Lords on legislative recommendations in our First Report not yet reflected in the Bill.
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The British Bankers' Association said: "The banking industry supports the principle of ringfencing and is committed to working with the Government and the regulators to ensure that the integrity of the ringfence is maintained.
“The Commission rightly identifies that a number of the other Independent Commission on Banking recommendations will be delivered through legislation under discussion in Europe. We would urge the Government to work with our European partners to ensure that these changes are adopted soon. Measures such as 'bail-in' will be most effective if introduced in a globally coordinated manner.”
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