Changes to banking system proposed

By Matthew Plant

The biggest banks in the UK should change the way they operate, to avoid the need for another bail-out.

That`s what the ICB (Independent Commission on Banking) says, as it delivers its `Interim Report` on banking, a `Consultation on Reform Options`.

Its job was to `consider structural and related non-structural reforms to the UK banking sector to promote financial stability and competition`. The ICB will make recommendations to the Government by September 2011.

So the Interim Report sets out some options - some possible changes to the way banking is carried out.

To make the banking system safer, it says, we need a combined approach that will:

• make the banks better able to absorb losses
• make it easier (and less costly) to deal with banks that get into trouble anyway; and
• reduce the incentives to take excessive risks.

The largest banks, the ICB believes, ought to be required to hold more capital as well as `ring-fencing` the operations of their retail banks (where customers` deposits are kept) from the riskier side of banking - investment banking. This way, if those investment banking activities ran into difficulties, the retail operations would be protected.

The Commission has not reached any final conclusions yet.

Tags: ICB, Independent Commission on Banking, Interim Report, report, UK banks, savings

Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider. Cards are provided by third parties and are subject to eligibility, status and terms and conditions. Applicants must be UK residents aged 18 or over.