U.K. Commission to Consider Full Separation of Banks

U.K. Commission to Consider Full Separation of Banks
John Vickers, chair of the Independent Commission of Banking, center, stands with members of the commission, from left to right, Bill Winters, Martin Wolf, Claire Spottiswoode, and Martin Taylor. Photographer: Simon Dawson/Bloomberg

A British government-commissioned enquiry designed to promote stability and competition in the banking industry may instruct lenders to separate their consumer and investment banking divisions.

The Independent Commission on Banking said it may bar banks from proprietary trading, where they trade with their own money, as well as introduce so-called living wills and the use of contingent capital, the body said in a statement today. The commission will also consider reducing “market concentration” in the industry.

“Being practical will be in the upper most of our minds,” said John Vickers, the Oxford University professor and former Bank of England economist who is running the commission, said at a press conference in London today. “Making recommendations that are totally impractical would not be a very sensible thing to do.”

HSBC Holdings Plc, Barclays Plc and Standard Chartered Plc have said they may move their headquarters overseas if the U.K. demands separation. The commission’s terms of reference require it to consider the effect of their proposals on the U.K.’s “competitiveness” and on the government’s tax income, which would be cut by bank relocations.

Vickers said today that the commission will hold public hearings to discuss the issues and some private hearings where banks will be asked for confidential information. The commission will then publish an options paper in April before presenting final conclusions next September.

‘Hard Questions’

“The more evidence in the pot the better,” Vickers said, as the five-member commission held its first press conference. “Experience shows that the risk of not asking hard questions about financial stability are greater than doing so.”

The findings will consider the impact on the domestic and overseas operations of British banks and the U.K. operations of foreign-owned lenders, the commission said.

The U.K. government which set up the enquiry in June is looking to reduce the risks posed by the financial sector after the state was forced to spend, pledge and loan 850 billion pounds ($1.3 trillion) to rescue British banks during the credit crisis, according to the National Audit Office.

The British Bankers’ Association issued a statement welcoming the commission, noting that U.K. banks have already taken “significant” steps to improve their financial position and hoping for “constructive” conclusions.

Bill Winters, co-CEO of JPMorgan Chase & Co.’s investment bank from 2004 to 2009, Martin Wolf, chief economics commentator at the Financial Times, Clare Spottiswoode, former director general of energy regulator Ofgas, and Martin Taylor, the former Barclays CEO, are also on the panel.

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