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Independent Commission on Banking: what it means

Independent Commission on Banking: what it means

Category: Banking

Updated: 01/05/2014
First Published: 15/04/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Independent Commission on Banking (ICB) this week released its eagerly awaited interim report. In it the commission outlines proposals for reform of the banking sector. At the time of writing, these proposals have yet to be adopted by the coalition government but it's likely that at least some of the ideas put forward will eventually become law. Here's how they could affect you…

The ICB was tasked with finding ways to reform the banking industry to ensure another repeat of the financial crisis never happens again; and to protect taxpayers from the unprecedented intervention to prop up banks that were previously considered "too big to fail".

Lloyds may have to sell more branches

Three out of ten of us hold our current account with Lloyds Banking Group. The ICB has taken the view that this dominance is unhelpful for competition in the banking sector. Therefore, it is recommending that Lloyds be forced to sell more than the 600 branches they are already being forced to sell by the European Commission.

What this could mean for you:

  • Potentially this could mean that you will become the customer of another bank, if it purchases your local branch.
  • Of course, if you wanted you could remain a customer of Lloyds Banking Group, but it might mean that your local branch isn't as local as it was before.

Separate arms

The ICB stepped back from the complete breaking up of the banks, by choosing not to physically separate retail banking (the part of the bank that deals with current accounts, savings, mortgages, etc.) and investment banking. However, better controls will be put in place to ensure that a failing investment arm won't drag down a retail bank as well. The aim is that an investment arm will be able to "fail safely" without an adverse affect on retail banking customers. This would be achieved by:

  • Making "systemically important" banks hold a minimum of 10% of the money they lend as a safety buffer. At the moment banks are required to hold 7%.
  • Although retail and investment arms won't be completely separate, there will be a firewall that will allow the investment side to collapse without taking the retail side over the edge too. There will also be a limit on how much money banks can throw at trying to bail out a failing investment division.

What this could mean for you: If the banks have to hold back more money as a percentage of what they lend, a possible consequence could be higher borrowing rates on mortgages, loans, credit cards and overdrafts.

Portable current account numbers

An innovative idea to come out of the report was the concept of portable account numbers. The aim of this would be to promote competition in the current account market, by making the process of switching easier.

What this could mean for you:

  • You would be able to switch current accounts with the bare minimum of disruption.
  • The process would happen within seven days and because you keep the same account number – you wouldn't need to notify anyone (at present, even with most banks offering a switching service, you still have to inform anyone who pays into your account such as your employer, the DWP, pension provider, etc.).
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